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Output and Inflation Co-movement; An Update on Business-Cycle Stylized Facts

Michal Andrle, Jan Bruha () and Serhat Solmaz

No 16/241, IMF Working Papers from International Monetary Fund

Abstract: What are the drivers of business cycle fluctuations? And how many are there? By documenting strong and predictable co-movement of real variables during the business cycle in a sample of advanced economies, we argue that most business cycle fluctuations are driven by one major factor. The positive co-movement of real output and inflation convincingly argues for a demand story. We propose a simple statistic that can compare data and models. Based on this statistic, we show that the recent vintage of structural economic models has difficulties replicating the stylized facts we document.

Keywords: General equilibrium models; Business cycles; Developed countries; Demand; Inflation; Production; Business cycle, demand shocks, DSGE models, dynamic principal components, General (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2016-12-13
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