The comovement between real activity and prices in the G7

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: In this paper, we study the short-run and long-run comovement between prices and real activity in the G7 countries during the postwar period using VAR forecast errors and frequency domain filters. We find several patterns of the correlation coefficients that are robust across countries and time periods; typically, the correlation coefficients at long-run horizons are significantly negative and the correlation coefficients at short-run horizons are substantially higher. Additionally, there is evidence of positive correlation at short-run forecast horizons for some countries. Terms of use: Documents inWe are grateful to

A Long Term View on the Short Term Co-movement of Output and Prices in a Small Open Economy

“…Den Haan who introduces a new methodology by analyzing correlation coefficients of VARs at different forecast horizons finds positive correlations in the short run and negative correlations in the long run for US 1948-1997(Den Haan, 2000. The same conclusion is reached for the G7 countries (Canada, France, Germany, Italy, Japan, UK and US) in the postwar period (Den Haan and Sumner, 2004). Parker (2005) extends the work by den Haan by looking further back in time.…”

Synchronization of business cycles and economic policy linkages in ASEAN

“…Den Haan (2000) and Den Haan and Sumner (2004) argue that the traditional static correlation coefficients neglect information about the dynamic aspects of the co-movement between variables. Moreover, this may easily lead to misinterpreted co-movements in the analysis of nonstationary variables.…”

“…The dynamic correlation is then calculated by dividing the forecast error covariance of the diagonal element with the forecast error standard deviations (the main diagonal elements). Den Haan and Sumner (2004) show that the significance of this dynamic correlation can be tested by bootstrapping the VAR forecast errors.…”

“…By taking dynamic information about the leads and lags in the relationship between variables, this VAR method can provide better information than the simpler method of measuring co-movement patterns between the variables of interest. Den Haan (2000) and Den Haan and Sumner (2004) use this method to measure the co-movement between output and inflation in the USA and G7 countries, respectively. Camacho et al (2006) and Rana (2007) also apply this method to estimate the co-movements of business cycles among European and among East Asian countries, respectively.…”

“…First, a static measure is computed by using standard coefficients of correlation. Next, the short-term and long-term components in economic correlations are examined by using the VAR analysis proposed by Den Haan (2000) and Den Haan and Sumner (2004).…”