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The time-varying correlation between output and prices in the United States over the period 1800–2014

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  • Antonakakis, Nikolaos
  • Gupta, Rangan
  • Tiwari, Aviral K.

Abstract

In this study, we examine the time-varying correlations between output and prices, while controlling for the impact of the monetary policy stance and output and inflation uncertainties over the period 1800–2014. The results of the empirical analysis reveal that the dynamic correlations of output and prices were typically negative, suggesting a countercyclical behaviour of prices, apart from the early 1840s and from the beginning until the middle of the 20th century, when the correlation was positive, indicating a procyclicality of prices. A historical decomposition analysis based on a sign-restricted structural vector autoregressive model is able to relate the procyclical and countercyclical behaviour 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.

Suggested Citation

  • Antonakakis, Nikolaos & Gupta, Rangan & Tiwari, Aviral K., 2017. "The time-varying correlation between output and prices in the United States over the period 1800–2014," Economic Systems, Elsevier, vol. 41(1), pages 98-108.
    • Handle: RePEc:eee:ecosys:v:41:y:2017:i:1:p:98-108
    DOI: 10.1016/j.ecosys.2016.05.005
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    More about this item

    Keywords

    Conditional correlation; GARCH; Price-output comovement; US economy;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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