 Are Prices Countercyclical?Eswar Prasad and Bankim Chadha No 1992/088, IMF Working Papers from International Monetary Fund Abstract: This paper examines the comovement of prices with the cyclical component of output. It argues that determining the cyclical behavior of prices by applying the same stationarity-inducing transformation to the levels of both output and prices, and examining the correlations of the resulting series, can be misleading. A more appropriate procedure is to examine the correlations between the rate of inflation and the level of the cyclical component of output. In post-war U.S. data the correlations between similarly transformed price and output data are consistently and often strongly negative, as reported recently by a number of authors as evidence of countercyclical price behavior. The rate of inflation, however, is consistently and usually strongly positively correlated with various measures of the cyclical component of output. Keywords: WP; rate of inflation; aggregate demand; aggregate price level; price movement; demand-shift term; responsiveness parameter; supply-shift term; price series; supply shift-term; countercyclical price behavior; equilibrium inflation rate; Inflation; Sticky prices; Supply shocks; Business cycles (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1992/088 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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