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THE CYCLICAL BEHAVIOR OF PRICES AND RELATIVE PRICES
Author(s) -
DAVIS GEORGE K.,
KANAGO BRYCE E.
Publication year - 2008
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2007.00092.x
Subject(s) - gdp deflator , economics , monetary economics , shock (circulatory) , econometrics , real gross domestic product , relative price , gross output , gross domestic product , index (typography) , price index , production (economics) , macroeconomics , medicine , world wide web , computer science
Price and output shock correlations provide information concerning macroeconomic shocks. Previous research generally finds small or negative correlations between real gross domestic product (GDP) and GDP deflator shocks but positive correlations between industrial production (IP) and consumer price index (CPI) shocks at short forecast horizons. We show that mismatched price and output correlations may have different magnitudes or signs than matched pairs. Matched and mismatched correlations between disaggregated prices and output from the GDP accounts indicate the procyclical price of nondurables to durables makes correlations between mismatches misleading. Thus, there is reason to be skeptical of results based on IP and the CPI. ( JEL E31, E32)