Abstract
In this study, we examine the time-varying correlations between output and prices, while controlling for the impact of monetary policy stance, and output and inflation uncertainties over the period of 1800-2014. The results of the empirical analysis reveal that dynamic correlations of output and prices were typically negative, suggesting a countercyclical behaviour of prices, apart from the early 1840s, and from the beginning till the mid of the 20th century, wherein correlation were positive, indicating the procyclicality of prices. A historical decomposition analysis based on a sign-restricted structural vector autoregressive model is able to relate the procyclical and countercyclical behavior to the predominance of aggregate supply, and aggregate demand and/or monetary policy shocks, respectively. Moreover, inflation uncertainty (monetary policy stance) was found to have a positive (negative) effect on inflation over the last 215 years.
Original language | English |
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Pages (from-to) | 98-108 |
Journal | Economic Systems |
Volume | 41 |
Issue number | 1 |
Early online date | 27 Nov 2016 |
DOIs | |
Publication status | Published - Mar 2017 |
Keywords
- WNU
- Conditional correlation
- GARCH
- Price-Output Comovement
- US Economy