Assessing the Interaction Between the Yield Curve, the Business Cycle, and the Development of Central Banking in 19th Century Britain

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Much attention has recently been paid to the fact that yield curve inversions (i.e. higher yields on short-term than long-term bonds) have typically preceded economic downturns in recent decades. However, almost no prior analysis exists of the relation between yield curve fluctuationsand the significant topics of capital market development and business cycles in 19th century Britain. I propose to research the fluctuation of bond yields on British markets during the 19th century, assembling new and more detailed yield curve data than is currently available. I hope to assess the extent to which yield curves fluctuated or inverted that century, especially before and during major British financial crises such as the Panics of 1825, 1847, 1866, and 1890. I expect the timing and changing extent of yield curve fluctuations could provide insights into not only the development of British capital markets, but also into the development of the Bank of England and its powers and policy goals. I also hope to analyse how far the timing of yield curve fluctuations reflected the predictions of key business cycle theories, especially those which emphasise capital markets and interest rates, such as the Monetary Overinvestment Theory (Hayek 1933).