Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235340 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8970
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
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.
Subjects: 
real output
prices
persistence
fractional integration
JEL: 
C22
C23
E32
Document Type: 
Working Paper
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