The Comovements between Real Activity and Prices in the G7

38 Pages Posted: 1 Jun 2001

See all articles by Wouter J. den Haan

Wouter J. den Haan

University of Amsterdam; Centre for Economic Policy Research (CEPR); Tinbergen Institute

Steven Sumner

University of San Diego

Multiple version iconThere are 2 versions of this paper

Date Written: May 2001

Abstract

In this paper, we study the short-run and long-run comovement between prices and real activity in the G7 countries during the postwar period using VAR forecast errors and frequency domain filters. We find that there are several patterns of the correlation coefficients that are the same in all countries. In particular, the correlation at the 'long-run' horizon is virtually always negative and the correlation at the 'short-run' horizon is typically substantially higher. Although there is evidence of positive 'short-run' correlations for some countries it is not very robust to the choice of the price and output variables. In addition, we propose a more efficient method to calculate the covariances of VAR forecast errors and-in contrast to claims made in the literature-we show that band-pass filters isolate the desired set of frequencies not only when the series are stationary but also when they are first or second-order integrated processes.

Keywords: Covariance, filters, vector autoregressive models

JEL Classification: E31, E37

Suggested Citation

Den Haan, Wouter J. and Sumner, Steven, The Comovements between Real Activity and Prices in the G7 (May 2001). Available at SSRN: https://ssrn.com/abstract=270313

Wouter J. Den Haan (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www1.feb.uva.nl/toe/content/people/content/denhaan/pers.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Tinbergen Institute ( email )

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Rotterdam, 3062 PA
Netherlands

Steven Sumner

University of San Diego ( email )

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San Diego, CA 92110-2492
United States
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619-260-4891 (Fax)

HOME PAGE: http://www.sandiego.edu/~sumner