The Cyclical Behavior of Prices: Interpreting the Evidence
Previous studies of the cyclical behavior of prices have found that the cross-correlations between output and prices in post-WWII U.S. data are generally negative. These correlations h have been interpreted as being more consistent with supply-driven models of business cycle fluctuations than with models that focus on demand shocks. In this paper, the authors show that the signs of price-output correlations provide little information about the underlying shock; for instance, a simple Keynesian model driven by demand shocks leads to negative correlations between these variables. The authors' results suggest that price-output correlations may not be a particularly useful way to characterize the cyclical behavior of prices. Copyright 1995 by Ohio State University Press.
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Volume (Year): 27 (1995)
Issue (Month): 3 (August)
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