Are Prices Countercyclical?
This paper examines the comovement of prices with the cyclical component of output. It argues that determining the cyclical behavior of prices by applying the same stationarity-inducing transformation to the levels of both output and prices, and examining the correlations of the resulting series, can be misleading. A more appropriate procedure is to examine the correlations between the rate of inflation and the level of the cyclical component of output. In post-war U.S. data the correlations between similarly transformed price and output data are consistently and often strongly negative, as reported recently by a number of authors as evidence of countercyclical price behavior. The rate of inflation, however, is consistently and usually strongly positively correlated with various measures of the cyclical component of output.
What people are saying - Write a review
We haven't found any reviews in the usual places.
Other editions - View all
aggregate demand alternative transformations assumption that output autocorrelated behavior of prices Blanchard and Quah Business Cycles comovement of prices component of output contemporaneous correlation Cooley and Ohanian cyclical behavior cyclical component cyclical movements demand-driven model detrended output Detrended Price difference of output Economic equation estimated Examining the comovements examining the cross-correlations extent of disequilibrium flexible price level Hodrick-Prescott filter Impulse Response Functions inflation and cyclical inflation rate Kydland lags and leads level of output long-run movements measures median maximum Dev movements in output negative correlations nonstationarity number of lagged output and prices output is demand-determined panel period Phillips Curve positive correlations Prescott prices and output prices are flexible procyclical random walk rate of inflation Real Business Cycles regressions represents path shocks are temporary shocks to demand similarly transformed price Spectral Density stationary component Sticky Prices Stochastic Simulations stochastic trend supply of output supply-driven model Table unit root