Trend growth in post-1850 British economic history: The Kalman filter and historical judgment

Recent years have seen rapid developments in trend and cycle estimation. The Kalman filter approach to detrending has been used by several historians to interpret macroeconomic time series for the UK since the 18th century. In this paper we apply this detrending technique to UK national income and investment data to highlight both the usefulness of the approach and its limitations. In particular we argue that it cannot be regarded as a neutral arbiter of historical disputes because of the important role played by historical judgment and underlying economic theories. Yet this does not detract from the method but rather increases its usefulness as a heuristic device.