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The Cyclical Relationship between Output and Prices: An Analysis in the Frequency Domain

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Author Info
Pakko, Michael R

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Abstract

Research showing a negative correlation between output and prices has brought into question the conventional wisdom that prices are procyclical. However, this finding has been shown to be sensitive to the sample period considered. This paper examines the relationship in the frequency domain: the covariance of output and prices is decomposed into spectral components to investigate whether differences in the price-output relationship across sample periods reflect changes in the importance of various frequencies embedded within the correlations, or whether they reflect more fundamental changes in the entire spectral relationship. Some implications for model evaluation are also considered.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 32 (2000)
Issue (Month): 3 (August)
Pages: 382-99
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Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:3:p:382-99

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Chistiano, Lawrence J & den Haan, Wouter J, 1996. "Small-Sample Properties of GMM for Business-Cycle Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 309-27, July.
    Other versions:
  3. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278. [Downloadable!] (restricted)
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  4. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  5. David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
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  6. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept. [Downloadable!] (restricted)
  7. Watson, Mark W, 1993. "Measures of Fit for Calibrated Models," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1011-41, December. [Downloadable!] (restricted)
  8. Holger C. Wolf, 1991. "Procyclical prices: a demi-myth?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 25-28. [Downloadable!]
  9. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231. [Downloadable!] (restricted)
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  10. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18. [Downloadable!]
  11. Bankim Chadha & Eswar Prasad, 1994. "Are Prices Countercyclical? Evidence from the G-7," IMF Working Papers 94/91, International Monetary Fund.
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  12. Apostolos Serletis & David Krause, 1996. "Nominal stylized facts of U. S. business cycles," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 49-54. [Downloadable!]
  13. Wouter J. Den Haan, 1995. "The Comovements Between Real Activity and Prices at Different Business Cycle Frequencies," University of California at San Diego, Economics Working Paper Series 95-24, Department of Economics, UC San Diego.
  14. Hall, Thomas E., 1995. "Price cyclicality in the natural rate-nominal demand shock model," Journal of Macroeconomics, Elsevier, vol. 17(2), pages 257-272. [Downloadable!] (restricted)
  15. Fiorito, Riccardo & Kollintzas, Tryphon, 1994. "Stylized facts of business cycles in the G7 from a real business cycles perspective," European Economic Review, Elsevier, vol. 38(2), pages 235-269, February. [Downloadable!] (restricted)
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  16. Cooley, Thomas F. & Ohanian, Lee E., 1991. "The cyclical behavior of prices," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 25-60, August. [Downloadable!] (restricted)
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  17. Smith, R Todd, 1992. "The Cyclical Behavior of Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 413-30, November. [Downloadable!] (restricted)
  18. Robert E. Lucas, Jr., 1994. "On the welfare cost of inflation," Working Papers in Applied Economic Theory 94-07, Federal Reserve Bank of San Francisco.
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  20. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. William T. Gavin & Finn E. Kydland, 2000. "The nominal facts and the October 1979 policy change," Working Papers 2000-013, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  2. repec:bep:maccon:v:3:y:2003:i:1:p:1064-1064 is not listed on IDEAS
  3. Araujo, Eurilton & Cunha, Alexandre, 2002. "Brazilian Inflation and GDP from 1850 to 2000: An Empirical Investigation," Ibmec Working Papers wpe_26, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  4. William T. Gavin & Finn E. Kydland, 1997. "Endogenous money supply and the business cycle," Working Papers 1995-010, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  5. James Peery Cover & C. James Hueng, 2006. "Why Did the Sign of the Price-Output Correlation Change? Evidence from a Structural VAR with GARCH Errors," Working Papers 200602, Ball State University, Department of Economics, revised Mar 2006. [Downloadable!]
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