Inflation and Real Activity over the Business Cycle

Francesco Bianchi, Giovanni Nicolò and Dongho Song

No 31075, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C32 E31 E32 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-mac and nep-mon
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Working Paper: Inflation and Real Activity over the Business Cycle (2023)
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