The Relationship between Prices and Output in the UK and the US

19 Pages Posted: 5 Apr 2021

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Gloria Claudio-Quiroga

Francisco de Vitoria University

Luis A. Gil-Alana

University of Navarra - Department of Economics

Date Written: 2021

Abstract

This paper analyses the relationship between CPI and real GDP in both the US and the UK using fractional integration and long-range dependence techniques. All series appear to be highly trended and to exhibit high degrees of integration and persistence, especially in the case of CPI. Since the two variables have different degrees of integration in each of the two countries, fractional cointegration tests cannot be carried out. We assume instead weak exogeneity of each of them in turn and test for causality by regressing the other variable against lagged values of the weakly exogenous one. We find that the only significant relationship implies the existence of a lagged effect of prices on output in the case of the US, which suggests a dominant role for demand shocks.

JEL Classification: C220, C230, E320

Suggested Citation

Caporale, Guglielmo Maria and Claudio-Quiroga, Gloria and Gil-Alana, Luis A., The Relationship between Prices and Output in the UK and the US (2021). CESifo Working Paper No. 8970, Available at SSRN: https://ssrn.com/abstract=3819091

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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Marie Jahoda Building
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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Gloria Claudio-Quiroga

Francisco de Vitoria University

Spain

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

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