The Relationship between Prices and Output in the UK and the US

Guglielmo Maria Caporale, Gloria Claudio-Quiroga and Luis Gil-Alana

No 8970, CESifo Working Paper Series from CESifo

Abstract: This paper analyses the relationship between CPI and real GDP in both the US and the UK using fractional integration and long-range dependence techniques. All series appear to be highly trended and to exhibit high degrees of integration and persistence, especially in the case of CPI. Since the two variables have different degrees of integration in each of the two countries, fractional cointegration tests cannot be carried out. We assume instead weak exogeneity of each of them in turn and test for causality by regressing the other variable against lagged values of the weakly exogenous one. We find that the only significant relationship implies the existence of a lagged effect of prices on output in the case of the US, which suggests a dominant role for demand shocks.

Keywords: real output; prices; persistence; fractional integration (search for similar items in EconPapers)
JEL-codes: C22 C23 E32 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: The relationship between prices and output in the UK and the US (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8970

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