Output and Inflation Co-movement: An Update on Business-Cycle Stylized Facts

IMF Working Papers, December 13, 2016

Source details

Canonical URL: Output and Inflation Co-movement: An Update on Business-Cycle Stylized Facts

Most business cycle fluctuations are driven by one major factor, based on documentation of strong and predictable co-movement of real variables during the business cycle in a sample of advanced economies.
Real output and inflation co-move positively, which the authors interpret as convincing evidence for a demand story driving business cycles.
The recent vintage of structural economic models has difficulties replicating the stylized facts documented by the authors.

The paper proposes a simple statistic designed to compare data and models with respect to the documented co-movement patterns.
The statistic is used to show discrepancies between the stylized facts in the data and the behavior of contemporary structural models.

Subject areas: Business cycles, Econometric analysis, Econometric models, Economic growth, Financial services, Inflation, Inflation targeting, Monetary policy, Prices, Short term interest rates
Keywords: Business cycle; business cycle frequency; Business cycles; demand shock; demand shocks; DSGE models; dynamic principal components; Econometric models; Inflation; inflation cycle; inflation dynamics; inflation expectation; inflation gap; Inflation targeting; Short term interest rates; WP

Format indicated on landing page: PDF available for download.
Citation example provided in Chicago format including an accessed date of 9/17/2026.

IMF Working Paper No. 2016/241 — Michal Andrle, Jan Bruha, Serhat Solmaz

Output and Inflation Co-Movement: An Update on Business-Cycle Stylized Facts
- Output and Inflation Co-Movement: An Update on Business-Cycle Stylized Facts (Markdown version)
- Output and Inflation Co-Movement: An Update on Business-Cycle Stylized Facts (PDF)