Inflation and Real Activity over the Business Cycle

Francesco Bianchi, Giovanni Nicolo and Dongho Song
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Giovanni Nicolo: https://www.federalreserve.gov/econres/giovanni-nicolo.htm

No 2023-038, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study the relation between inflation and real activity over the business cycle. We employ a Trend-Cycle VAR model to control for low-frequency movements in inflation, unemployment, and growth that are pervasive in the post-WWII period. We show that cyclical fluctuations of inflation are related to cyclical movements in real activity and unemployment, in line with what is implied by the New Keynesian framework. We then discuss the reasons for which our results relying on a Trend-Cycle VAR differ from the findings of previous studies based on VAR analysis. We explain empirically and theoretically how to reconcile these differences.

Keywords: inflation; real activity; business cycles; trend-cycle VAR (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2023-03
New Economics Papers: this item is included in nep-fdg, nep-ger and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Inflation and Real Activity over the Business Cycle (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:96640

DOI: 10.17016/FEDS.2023.038

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