IDEAS home Printed from https://ideas.repec.org/a/spr/jbuscr/v19y2023i2d10.1007_s41549-023-00086-0.html
   My bibliography  Save this article

The Comovement Between Forecast Errors for Real GDP and Its Deflator in Six OECD Countries: Did Supply Shocks Become Less Dominant During the Great Moderation?

Author

Listed:
  • Bryce Kanago

    (University of Northern Iowa)

Abstract

A negative correlation between forecast errors of the price level and real output is evidence that prices are countercyclical and so evidence for the dominance of supply shocks. We examine the correlation between the forecast errors of real GDP and its deflator for six OECD countries. With the exceptions of the United Kingdom and the United States, previous research used errors from an Index of Industrial Production and the Consumer Price Index. Using real GDP and the GDP deflator, the patterns of correlations over forecast horizons for Canada, France, Italy, and Japan do not match closely with that of either the UK or the US. Using a longer sample than previous studies we find evidence that the correlations are greater and often positive after 1981 indicating diminished dominance of supply shocks. This decrease is associated with decreases in both the relative frequency and relative size of the negative products of the forecast errors.

Suggested Citation

  • Bryce Kanago, 2023. "The Comovement Between Forecast Errors for Real GDP and Its Deflator in Six OECD Countries: Did Supply Shocks Become Less Dominant During the Great Moderation?," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 19(2), pages 149-169, September.
    • Handle: RePEc:spr:jbuscr:v:19:y:2023:i:2:d:10.1007_s41549-023-00086-0
    DOI: 10.1007/s41549-023-00086-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s41549-023-00086-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s41549-023-00086-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Frederick C. Mills, 1927. "Introduction to "The Behavior of Prices"," NBER Chapters, in: The Behavior of Prices, pages 31-36, National Bureau of Economic Research, Inc.
    2. George Davis & Bryce Kanago, 2002. "The contemporaneous correlation between price shocks and output shocks," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2333-2339.
    3. Cassou Steven P. & Vázquez Jesús, 2014. "Small-scale New Keynesian model features that can reproduce lead, lag and persistence patterns," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 267-300, January.
    4. Jesus Vazquez, 2002. "The co-movement between output and prices in the EU15 countries: an empirical investigation," Applied Economics Letters, Taylor & Francis Journals, vol. 9(14), pages 957-966.
    5. Frederick C. Mills, 1927. "The Behavior of Prices," NBER Books, National Bureau of Economic Research, Inc, number mill27-1.
    6. George K. Davis & Bryce E. Kanago, 2008. "The Cyclical Behavior Of Prices And Relative Prices," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 576-586, October.
    7. Judd, John P & Trehan, Bharat, 1995. "The Cyclical Behavior of Prices: Interpreting the Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 789-797, August.
    8. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230, National Bureau of Economic Research, Inc.
    9. Hall, Thomas E., 1995. "Price cyclicality in the natural rate-nominal demand shock model," Journal of Macroeconomics, Elsevier, vol. 17(2), pages 257-272.
    10. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
    11. Cooley, Thomas F. & Ohanian, Lee E., 1991. "The cyclical behavior of prices," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 25-60, August.
    12. Frederick C. Mills, 1927. "Appendix to "The Behavior of Prices"," NBER Chapters, in: The Behavior of Prices, pages 441-586, National Bureau of Economic Research, Inc.
    13. den Haan, Wouter J., 2000. "The comovement between output and prices," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 3-30, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. den Haan, Wouter J. & Sumner, Steven W., 2004. "The comovement between real activity and prices in the G7," European Economic Review, Elsevier, vol. 48(6), pages 1333-1347, December.
    2. George K. Davis & Bryce E. Kanago, 2008. "The Cyclical Behavior Of Prices And Relative Prices," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 576-586, October.
    3. George Davis & Bryce Kanago, 2002. "The contemporaneous correlation between price shocks and output shocks," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2333-2339.
    4. Pakko, Michael R, 2000. "The Cyclical Relationship between Output and Prices: An Analysis in the Frequency Domain," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 382-399, August.
    5. James Peery Cover & C. James Hueng, 2003. "The Correlation between Shocks to Output and the Price Level: Evidence from a Multivariate GARCH Model," Southern Economic Journal, John Wiley & Sons, vol. 70(1), pages 75-92, July.
    6. David Smant, 1996. "Re-examining the cyclical behaviour of prices and output," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 132(4), pages 651-674, December.
    7. George K Davis & Bryce E. Kanago, 2005. "Mismatching Measures of Output and Prices: Implications for Measuring the Comovement of Prices and Output," Macroeconomics 0501005, University Library of Munich, Germany.
    8. Maarten Dossche, 2009. "Understanding Inflation Dynamics.Where Do We Stand?," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(2), pages 209-227.
    9. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 133-163, May.
    10. Juan Jiménez & Jordi Perdiguero, 2012. "Does Rigidity of Prices Hide Collusion?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(3), pages 223-248, November.
    11. Khan, Muhammad, 2016. "Evidence on the functional form of inflation and output growth variability relationship in European economies," International Economics, Elsevier, vol. 146(C), pages 1-11.
    12. Pinelopi K. Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
    13. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
    14. Alan Kackmeister, 2007. "Yesterday's Bad Times Are Today's Good Old Times: Retail Price Changes Are More Frequent Today Than in the 1890s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1987-2020, December.
    15. Hartley, Peter R. & Whitt Jr, Joseph A., 2003. "Macroeconomic fluctuations: Demand or supply, permanent or temporary?," European Economic Review, Elsevier, vol. 47(1), pages 61-94, February.
    16. Menezes, Flavio M. & Quiggin, John, 2022. "Market power amplifies the price effects of demand shocks," Economics Letters, Elsevier, vol. 221(C).
    17. Michael Aarstol, 1999. "Inflation, Inflation Uncertainty, and Relative Price Variability," Southern Economic Journal, John Wiley & Sons, vol. 66(2), pages 414-423, October.
    18. Cleomar Gomes da Silva & Gilberto O. Boaretto, 2018. "Inflation and Relative Price Variability in Brazil: A Time-Varying Parameter Approach," Economics Bulletin, AccessEcon, vol. 38(4), pages 1947-1956.
    19. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 132-152, February.
    20. Chen, Bin & Hong, Yongmiao, 2014. "A unified approach to validating univariate and multivariate conditional distribution models in time series," Journal of Econometrics, Elsevier, vol. 178(P1), pages 22-44.

    More about this item

    Keywords

    Cycles; Inflation; Vector Autoregressions; Forecasts;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jbuscr:v:19:y:2023:i:2:d:10.1007_s41549-023-00086-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.