Cyclical Behavior of Prices in the G7 Countries Through Wavelet Analysis

Advances in Complex Systems, Vol. 11, No. 1, pp. 119-130, 2008

Posted: 26 Apr 2010

See all articles by Marco Gallegati

Marco Gallegati

Polytechnic University of Marche - Faculty of Economics

Antonio Palestrini

Universita di Teramo

Date Written: February 1, 2008

Abstract

Our analysis, conducted using the GDP and the GDP deflator time series (OECD source; 1960–2001) for the G7 countries, shows the robustness of the negative covariance between the GDP and its deflator, but only over long run horizons. Through wavelet decomposition we evaluate the price–output relationship at different time scales, where most countries reveal similar patterns. More precisely, at short time scales a positive correlation seems to appear whereas, and consequently, a regime switch occurs at a time horizon of about two years leading to a negative relationship for higher horizons. These results seem to suggest that the negative or acyclical relationship usually found after the 1960s may be the composite effect of different time scale correlations, where the four-year-horizon component seems to have the greatest influence. In particular for Canada, France, and Italy we observe something like a rotation of the price–output relationship between the countercyclical and the procyclical relationship. Finally, our analysis shows that even the relationship between the two series does not seem to be very stable regarding the lead and lag structure also. The phase is nonlinear for all the countries and, consequently, the group delay (the lag) is not constant. In particular, looking at the time scale we observe an inversion of the local monotonicity at the frequency of about 0.3–0.35 for all G7 countries.

Keywords: Price–output relationship, discrete wavelet transform

Suggested Citation

Gallegati, Marco and Palestrini, Antonio, Cyclical Behavior of Prices in the G7 Countries Through Wavelet Analysis (February 1, 2008). Advances in Complex Systems, Vol. 11, No. 1, pp. 119-130, 2008, Available at SSRN: https://ssrn.com/abstract=1505096

Marco Gallegati (Contact Author)

Polytechnic University of Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

Antonio Palestrini

Universita di Teramo ( email )

Via R. Balzarini 1, Località Colleparco
I-64124 Teramo
Italy
+39 0733 773473 (Phone)
+39 0861 266665 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
246
PlumX Metrics