Price-level uncertainty and instability in the United Kingdom

Was UK inflation more stable and/or less uncertain before 1914 or after 1945? We address these questions by estimating a statistical model with changing volatilities in transient and persistent components of inflation. Three conclusions emerge. First, since periods of high and low volatility occur in both eras, neither features uniformly greater stability or lower uncertainty. When comparing peaks with peaks and troughs with troughs, however, we find clear evidence that the price level was more stable before World War I. We also find some evidence for lower uncertainty at pre-1914 troughs, but its statistical significance is borderline.