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

  • Pakko, Michael R

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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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
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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