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Are Prices Countercyclical?
Author:
Mr. Eswar S Prasad
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Mr. Bankim Chadha
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Series:
IMF Working Papers
Volume/Issue:
Volume 1992: Issue 088
Language:
English
Publication Date:
01 Oct 1992
DOI:
https://doi.org/10.5089/9781451851076.001
ISBN:
9781451851076
ISSN:
1018-5941
Pages:
37
Keywords:
WP; rate of inflation; aggregate demand; aggregate price level; price movement; demand-shift term; responsiveness parameter; supply-shift term; price series; supply shift-term; countercyclical price behavior; equilibrium inflation rate; Inflation; Sticky prices; Supply shocks; Business cycles
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper examines the comovement of prices with the cyclical component of output. It argues that determining the cyclical behavior of prices by applying the same stationarity-inducing transformation to the levels of both output and prices, and examining the correlations of the resulting series, can be misleading. A more appropriate procedure is to examine the correlations between the rate of inflation and the level of the cyclical component of output. In post-war U.S. data the correlations between similarly transformed price and output data are consistently and often strongly negative, as reported recently by a number of authors as evidence of countercyclical price behavior. The rate of inflation, however, is consistently and usually strongly positively correlated with various measures of the cyclical component of output.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund