Working Paper

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

Abstract: 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.

Keywords: Inflation (Finance); Business cycles; Prices; Production (Economic theory);

Status: Published in Journal of Money, Credit, and Banking, August 2000, 32(2,part1), pp. 155-67

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 1997

Number: 1997-007