IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Why Did the Sign of the Price-Output Correlation Change? Evidence from a Structural VAR with GARCH Errors

  • James Peery Cover

    ()

    (Department of Economics, Finance & Legal Studies, University of Alabama)

  • C. James Hueng

    ()

    (Department of Economics, Western Michigan University)

It is generally agreed that the price-output correlation in the United States was positive prior to the Second World War, but became negative during the postwar period (at least by 1972). This paper offers evidence that the price-output correlation changed signs because of a decrease in the variability of aggregate demand. A structural VAR with bivariate GARCH (1,1) errors is used to estimate a times series of price-output correlations as well as of the conditional variances of the structural shocks to AD and AS. It is found that during the postwar period the price-output correlation is negative and significantly different from zero only when the standard deviation of the AD shock is less than that of the AS shock.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://econfac.iweb.bsu.edu/research/workingpapers/cover_2006.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Tung Liu)


File Function: First version, 2006
Download Restriction: no

Paper provided by Ball State University, Department of Economics in its series Working Papers with number 200602.

as
in new window

Length: 27 pages
Date of creation: Mar 2006
Date of revision: Mar 2006
Handle: RePEc:bsu:wpaper:200602
Contact details of provider: Postal: Muncie, Indiana 47306
Phone: (765) 285-5360
Fax: (765) 285-8024
Web page: http://www.bsu.edu/econ

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Smith, R Todd, 1992. "The Cyclical Behavior of Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 413-30, November.
  2. Michael R. Pakko, 1997. "The cyclical relationship between output and prices: an analysis in the frequency domain," Working Papers 1997-007, Federal Reserve Bank of St. Louis.
  3. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1, December.
  4. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, December.
  5. James Hartley, 1999. "Real myths and a monetary fact," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1325-1329.
  6. Cooley, T.F. & Ohanian, L.E., 1989. "The Cyclical Behavior Of Prices," RCER Working Papers 188, University of Rochester - Center for Economic Research (RCER).
  7. John P. Judd & Bharat Trehan, 1993. "The cyclical behavior of prices: interpreting the evidence," Working Papers in Applied Economic Theory 93-14, Federal Reserve Bank of San Francisco.
  8. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Mankiw, N Gregory, 1989. "Real Business Cycles: A New Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 79-90, Summer.
  10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  11. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-88, September.
  12. Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 127-151, December.
  13. Bankim Chadha & Eswar Prasad, 1993. "Interpreting the Cyclical Behavior of Prices," IMF Staff Papers, Palgrave Macmillan, vol. 40(2), pages 266-298, June.
  14. Holger C. Wolf, 1991. "Procyclical prices: a demi-myth?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 25-28.
  15. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
  16. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
  17. Cover, James Peery & Enders, Walter & Hueng, C. James, 2006. "Using the Aggregate Demand-Aggregate Supply Model to Identify Structural Demand-Side and Supply-Side Shocks: Results Using a Bivariate VAR," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 777-790, April.
  18. Cover James Peery & Pecorino Paul, 2003. "Optimal Monetary Policy and the Correlation between Prices and Output," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-21, February.
  19. Floden, Martin, 2000. "Endogenous monetary policy and the business cycle," European Economic Review, Elsevier, vol. 44(8), pages 1409-1429, August.
  20. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bsu:wpaper:200602. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tung Liu)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.