A0887
Title: Inflation and real activity over the business cycle
Authors: Giovanni Nicolo - (United States) [presenting]
Francesco Bianchi - Cornell University and Duke University (United States)
Dongho Song - Johns Hopkins University (United States)
Abstract: The relation between inflation and real activity is studied over the business cycle. A Trend-Cycle VAR model is employed to control for low-frequency movements in inflation, unemployment, and growth that are pervasive in the post-WWII period. It is shown that cyclical fluctuations of inflation are related to cyclical movements in real activity and unemployment, in line with what is implied by the New Keynesian framework. The reasons are then discussed for which the results relying on a Trend-Cycle VAR differ from the findings of previous studies based on VAR analysis. It is explained empirically and theoretically how to reconcile these differences.
