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The Comovements between Real Activity and Prices in the G7

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Author Info
Wouter J. Den Haan
Steven Sumner

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8195.

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Date of creation: Mar 2001
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Handle: RePEc:nbr:nberwo:8195

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

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  1. Martin Gonzalez-Rozada & Jose Maria Fanelli, 2004. "Business Cycles and Macroeconomic Policy Coordination in Mercosur," Econometric Society 2004 Latin American Meetings 328, Econometric Society. [Downloadable!]
    Other versions:
  2. Jesús Vazquez, 2003. "Is there a Phillips Curve in the US and the EU15 Countries? An empirical investigatio," DFAEII Working Papers 200232, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
  3. den Haan, Wouter J. & Sumner, Steven W., 2004. "The comovement between real activity and prices in the G7," European Economic Review, Elsevier, vol. 48(6), pages 1333-1347, December. [Downloadable!] (restricted)
  4. Bernd Suessmuth, 2002. "National and Supranational Business Cycles (1960-2000): A multivariate description of central G7 and EURO15 NIPA aggregates," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Simon van Norden, 2002. "Filtering for Current Analysis," Working Papers 02-28, Bank of Canada. [Downloadable!]
  6. Blanca Sanchez-Robles & Jose Villaverde, 2001. "Costs of EMU from a regional approach: the Spanish case," ERSA conference papers ersa01p52, European Regional Science Association. [Downloadable!]
  7. 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!]
  8. repec:dgr:uvatin:20020092 is not listed on IDEAS
  9. Ana Lamo & Javier J. Pérez & Ludger Schuknecht, 2007. "The cyclicality of consumption, wages and employment of the public sector in the euro area," Working Paper Series 757, European Central Bank. [Downloadable!]
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