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The Comovements Between Real Activity and Prices

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  • den Haan, Wouter J.
  • SUMNER, STEVEN W
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    Abstract

    In this paper, we study the short-run and long-run comovement between prices and real activity in the G7 countries during the postwar period using VAR forecast errors and frequency domain filters. We find that there are several patterns of the correlation coefficients that are the same in all countries. In particular, the correlation at the "long-run" horizon is virtually always negative and the correlation at the "short-run" horizon is typically substantially higher. Although there is evidence of positive "short-run" correlations for some countries it is not very robust to the choice of the price and output variables. In addition, we propose a more efficient method to calculate the covariances of VAR forecast errors and--in contrast to claims made in the literature--we show that band-pass filters isolate the desired set of frequencies not only when the series are stationary but also when they are first or second-order integrated processes.

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    File URL: http://www.escholarship.org/uc/item/8c23205t.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt8c23205t.

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    Date of creation: 01 Mar 2001
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    Handle: RePEc:cdl:ucsdec:qt8c23205t

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    Related research

    Keywords: VAR; short-run;

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    Cited by:
    1. Martín Gonzalez Rozada & José Fanelli, 2003. "Business Cycle and Macroeconomic Policy Coordination in MERCOSUR," Business School Working Papers uno, Universidad Torcuato Di Tella.
    2. Lamo, Ana & Pérez, Javier J. & Schuknecht, Ludger, 2007. "The cyclicality of consumption, wages and employment of the public sector in the euro area," Working Paper Series 0757, European Central Bank.
    3. Simon van Norden, 2002. "Filtering for Current Analysis," Working Papers 02-28, Bank of Canada.
    4. Blanca Sanchez-Robles & Jose Villaverde, 2001. "Costs of EMU from a regional approach: the Spanish case," ERSA conference papers ersa01p52, European Regional Science Association.
    5. Bernd Süssmuth, 2002. "National and Supranational Business Cycles (1960-2000): A multivariate description of central G7 and EURO15 NIPA aggregates," CESifo Working Paper Series 658, CESifo Group Munich.

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