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The cyclical relationship between output and prices: an analysis in the frequency domain

  • Michael R. Pakko

Recent research showing negative correlations between detrended output and prices during the postwar period 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 between output and prices in the frequency domain: using quarterly data on GNP and the deflator for the period 1875-1994, the covariance of output and prices is decomposed into its spectral components in order to investigate whether the differences in the price-output relationship across sample periods reflect changes in the importance of various frequencies within the correlations, or whether they reflect more fundamental changes in the entire spectral relationship.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1997-007.

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Date of creation: 1997
Date of revision:
Publication status: Published in Journal of Money, Credit, and Banking, August 2000, 32(2,part1), pp. 155-67
Handle: RePEc:fip:fedlwp:1997-007
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  1. Francis X. Diebold & Lee E. Ohanian & Jeremy Berkowitz, 1997. "Dynamic equilibrium economies: a framework for comparing models and data," Finance and Economics Discussion Series 1997-23, Board of Governors of the Federal Reserve System (U.S.).
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  7. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  8. Fiorito, Riccardo & Kollintzas, Tryphon, 1992. "Stylized Facts of Business Cycles in the G7 from a Real Business Cycles Perspective," CEPR Discussion Papers 681, C.E.P.R. Discussion Papers.
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  11. Mark W. Watson, 1991. "Measures of fit for calibrated models," Working Paper Series, Macroeconomic Issues 91-9, Federal Reserve Bank of Chicago.
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