The Cyclical Behavior of Prices: Interpreting the Evidence

John P Judd and Bharat Trehan ()

Journal of Money, Credit and Banking, 1995, vol. 27, issue 3, 789-97

Abstract: Previous studies of the cyclical behavior of prices have found that the cross-correlations between output and prices in post-WWII U.S. data are generally negative. These correlations h have been interpreted as being more consistent with supply-driven models of business cycle fluctuations than with models that focus on demand shocks. In this paper, the authors show that the signs of price-output correlations provide little information about the underlying shock; for instance, a simple Keynesian model driven by demand shocks leads to negative correlations between these variables. The authors' results suggest that price-output correlations may not be a particularly useful way to characterize the cyclical behavior of prices. Copyright 1995 by Ohio State University Press.

Date: 1995
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Working Paper: The cyclical behavior of prices: interpreting the evidence (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:27:y:1995:i:3:p:789-97

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