RELATION TO MONEY AND PRICES

and the So-Called Business Cycle. 9 The upper part ofChart 45 gives the correlation coefficient (r) obtainedby correlating the long term interest rates as reflectedin the yield of British consols with percentage changesin prices computed from the British wholesale index num-bers of Sauerbeck and The Statist. 0 The lower part ofthis chart gives the r’s for bond yields and percentageprice changes in the United States. 10

In Great Britain, the price changes from 1820 to 1924fall into three clearly defined periods, namely, 1820 to1864, a period of fluctuating prices with no marked up-ward or downward trend in prices; 1865 to 1897, a periodof declining prices; 1898 to 1924, a period chiefly of risingprices, including a big boom from 1915 to 1920, followedby a crash and more stable prices since 1922.

A very brief examination of the charts below indicatesthat there is little or no apparent relationship betweenprice changes and interest rates in any of the periodsstudied in either country except for 1898-1924 in GreatBritain. For the period 1820-1864 in Great Britain weobtain a maximum inverse correlation of —0.459, withoutlagging. For the period 1898-1924, we get as a maximum+ 0.623 when i is lagged 4 years and -1- 0.678 when i islagged 6 years. Lag means the time interval between a

“See Journal of the American Statistical Association. June, 1925,p. 81, footnote 3.

"The British bond yields here used were taken from an article byA. H. Gibson, The Future Course of High Class Investment Values,The Bankers’, Insurance Managers’ and Agents’ Magazine, January,1923, p. 15. Reprinted in revised form in The Spectator , March 7,1925.

10 The United States bond yields here used were taken from the Sta-tistical Bulletin, 1928-1929, of the Standard Statistics Company. Per-centage price changes were computed from the Wholesale CommodityPrice Indexes of the United States Bureau of Labor Statistics.

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