The Comovements between Real Activity and Prices in the G7

Haan, Wouter J. Den; Sumner, Steven

doi:10.3386/w8195

Cited by 12 publications

(4 citation statements)

References 16 publications

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“…In this context a test for frequency dependence is then straightforward: one merely tests the null hypothesis that these M coefficients are all equal. Moreover, this new approach is easy to implement since this linear form in the M components 1 E.g., Christiano and Fitzgerald (2003a), Comin and Gertler (2003) and Den Haan and Sumner (2004). 2 The results from spectral regression approaches to the modeling of frequency dependent coefficients -e.g., Hannan (1963), Engle (1974Engle ( , 1978, and Tan and Ashley (1999b) -are similarly distorted by feedback because the Fourier transformation used in these approaches is itself a two-sided filter.…”

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confidence: 99%

Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series

Ashley

Verbrugge

2008

Econometric Reviews

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This paper proposes a new class of nonlinear time series models in which one of the coefficients of an existing regression model is frequency dependent -that is, the relationship between the dependent variable and this explanatory variable varies across its frequency components. We show that such frequency dependence implies that the relationship between the dependent variable and this explanatory variable is nonlinear. Past efforts to detect frequency dependence have not been satisfactory; for example, we note that the two-sided bandpass filtering used in such efforts yields inconsistent estimates of frequency dependence where there is feedback in the relationship. Consequently, we provide an explicit procedure for partitioning an explanatory variable into frequency components using one-sided bandpass filters. This procedure allows us to test for and quantify frequency dependence even where feedback may be present. A distinguishing feature of these new models is their potentially tight connection to macroeconomic theory: indeed, they are perhaps best introduced by reference to the frequency dependence in the marginal propensity to consume posited by the Permanent Income Hypothesis of consumption theory. An illustrative empirical application is given, in which the Phillips Curve relationship between inflation and unemployment is found to be negligible at low frequencies, corresponding to periods greater than a year, but inverse at higher frequenciesjust as predicted by Friedman and Phelps in the 1960's. JEL Classification Codes: C22, E00, E31 ⋆ We thank

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confidence: 99%

Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series

Ashley

Verbrugge

2008

Econometric Reviews

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“…663 U.S. Prices Become Independent of Business Cycles is split into two subperiods, that is, pre-1984 and post-1984. The break date was chosen using the existing evidence on the reduced U.S. price countercyclicality at the aggregate level in the post-1984 period (Haan and Sumner, 2004;Mumtaz et al, 2011), the decline in the variance of U.S. output growth, known as the Great Moderation in post-1984 (McConnell andPerez-Quiros, 2000), and the vanishing procyclicality of labor productivity after 1984 (Barnichon, 2010;Gali and Rens, 2010).…”

Section: Evidence On Changes In Price Cyclicalitymentioning

confidence: 99%

“…However, the price cyclicality began to change in the U.S. economy beginning in the early 1980s. Based on the monthly industrial production level and the consumer price index as well as the quarterly GDP and its deflator, Haan and Sumner () observe that the correlation between the price index and output gap has become much less negative, nearly close to zero, over the last two decades for the U.S. However, no substantial change is observed for the other G7 economies.…”

Section: Introductionmentioning

confidence: 99%

Why Have U.S. Prices Become Independent of Business Cycles?

2015

Metroeconomica

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This article analyzes the issue of price cyclicality from a Post Keynesian perspective. It shows that there are two key factors at the center of the mechanism for the sudden U.S. transition from countercyclical to a-cyclical price movement in the early 1980s. First, the cost pass-through policy has been changed to ensure that the cyclical changes of input prices and/or labor productivity are absorbed more thoroughly and are thus reflected more frequently in profit markups than occurred prior to 1984. This relatively increased adaptability of the profit markups in the aggregate sense between the pricing periods cushions the direct effect of cyclical changes in the cost base on price cyclicality. Second, a structural change in the U.S. labor productivitys cyclical property has generated cost-base stability during the post-1984 period. Declines in hiring and firing costs and cutbacks in social security benefits have led the labor discipline effect to dominate the labor hoarding effect. This has allowed labor productivity to increase as the unemployment rate rises; thus, the cost base cyclicality has weakened, and prices have become less cyclical since 1984.

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“…Cooley and Ohanian (1991) find little evidence in over a hundred years of data of a consistent relationship between output and price in the United States. Cross-country studies such as Backus and Kehoe (1992), Fiorito and Kolintzas (1994), and den Haan and Summer (2001) suggest that countercyclical price movement is quite common. Balke and Wynne (2001) document that a negative relationship between output and prices predominates at the sectoral level as well.…”

Section: Introductionmentioning

confidence: 99%

Sectoral Price Changes and Output Growth: Supply and Demand in General Equilibrium

Balke

Nath

2003

SSRN Journal

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Price changes and output growth, both at the aggregate and the sectoral level, appear to be negatively correlated. At a basic level, this suggests that sectoral "supply" shocks are more prevalent than sectoral "demand" shocks. However, it is not clear what these sectoral price-output correlations mean once one thinks in terms of general equilibrium. To help us understand the implication of these price-output correlations, this paper examines a multi-sector dynamic general equilibrium model that includes sectoral technology shocks and sectoral demand shocks, as well as aggregate money growth shocks. We show that while a model driven solely by sectoral technology shocks can generate "plausible" price-output correlations, "demand" shocks, particularly sectoral demand shocks, are needed for the model to generate the sectoral price-output correlations observed in the data. We also show that technology shocks do not always look like "supply" shocks. Positive technology shocks to sectors producing goods that are used for investment frequently result in increases in output and prices in other sectors while positive technology shocks to sectors producing goods that are used primarily as intermediate inputs look like supply shocks in other sectors

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The Comovements between Real Activity and Prices in the G7

Cited by 12 publications

References 16 publications

Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series

Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series

Why Have U.S. Prices Become Independent of Business Cycles?

Sectoral Price Changes and Output Growth: Supply and Demand in General Equilibrium

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