Inflation and Real Activity over the Business Cycle

Francesco Bianchi, Giovanni Nicolò, Dongho Song

We study the relation between inflation and real activity over the business cycle. We employ a Trend-Cycle VAR model to control for low-frequency movements in inflation, unemployment, and growth that are pervasive in the post-WWII period. We show 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. We then discuss the reasons for which our results relying on a Trend-Cycle VAR differ from the findings of previous studies based on VAR analysis. We explain empirically and theoretically how to reconcile these differences

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Year of publication:	March 2023
Authors:	Bianchi, Francesco ; Nicolò, Giovanni ; Song, Dongho
Institutions:	National Bureau of Economic Research (issuing body)
Publisher:	Cambridge, Mass : National Bureau of Economic Research
Subject:	Konjunktur \| Business cycle \| Inflation \| Arbeitslosigkeit \| Unemployment \| Zeitreihenanalyse \| Time series analysis \| VAR-Modell \| VAR model \| Theorie \| Theory