THE CYCLICAL BEHAVIOR OF PRICES AND RELATIVE PRICES |
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| Authors: | GEORGE K DAVIS BRYCE E KANAGO |
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| Institution: | 1. Davis: Professor, Department of Economics, Miami University, Oxford, OH 45056. Phone 1‐513‐529‐2842, Fax 1‐513‐529‐6992, E‐mail davisgk@muohio.edu;2. Kanago: Associate Professor, Department of Economics, University of Northern Iowa, Cedar Falls, IA 50614‐0129. Phone 1‐319‐273‐2951, Fax 1‐319‐273‐7509, E‐mail bryce.kanago@uni.edu |
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| 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) |
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