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Real myths and a monetary fact

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  • James Hartley

Abstract

In their paper 'Business cycles: real facts and a monetary myth,' Kydland and Prescott (Federal Reserve Bank of Minneapolis Quarterly Review, 14, 1990) present a series of statistics, generated by using the Hodrick-Prescott filter, which they define as the 'business cycle facts.' Prescott (Federal Reserve Bank of Minneapolis Quarterly Review, 10, 1986) argued that the facts are immune to the method of detrending; however, even if we use the Hodrick-Prescott filter, we can get a set of facts that differ in important ways from those in Kydland and Prescott (1990). In particular, we can generate the conventional wisdom that real wages are acyclical, very different relative volatilities of consumption, investment and output, and M1 leading the cycle. In addition, we note that the other important fact generated by Kydland and Prescott, the countercyclicality of prices, was not actually a new result.

Suggested Citation

  • James Hartley, 1999. "Real myths and a monetary fact," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1325-1329.
    • Handle: RePEc:taf:applec:v:31:y:1999:i:11:p:1325-1329
    DOI: 10.1080/000368499323201
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    References listed on IDEAS

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    1. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, March.
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    Cited by:

    1. 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.
    2. James Peery Cover & C. James Hueng, 2003. "The Correlation between Shocks to Output and the Price Level: Evidence from a Multivariate GARCH Model," Southern Economic Journal, John Wiley & Sons, vol. 70(1), pages 75-92, July.

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