Faculty Publications

Title

The cyclical behavior of prices and relative prices

Document Type

Article

Journal/Book/Conference Title

Economic Inquiry

Volume

46

Issue

4

First Page

576

Last Page

586

Abstract

Price and output shock correlations provide information concerning macroeconomic shocks. Previous research generally finds small or negative correlations between real gross domestic product (GDP) and GDP deflator shocks but positive correlations between industrial production (IP) and consumer price index (CPI) shocks at short forecast horizons. We show that mismatched price and output correlations may have different magnitudes or signs than matched pairs. Matched and mismatched correlations between disaggregated prices and output from the GDP accounts indicate the procyclical price of nondurables to durables makes correlations between mismatches misleading. Thus, there is reason to be skeptical of results based on IP and the CPI. (JEL E31, E32) © 2007 Western Economic Association International.

Original Publication Date

10-1-2008

DOI of published version

10.1111/j.1465-7295.2007.00092.x

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