Money, Prices, Interest Rates and the Business Cycle
First published: 2005
Brief summary
Foundational spectral analysis of US monetary and price data finds the spectral peak in price inflation occurs at a periodicity of 51 quarters, notably lower frequency than the 20-quarter periodicity peak found in money growth and real output variables.
Article
Money, Prices, Interest Rates and the Business Cycle is a peer-reviewed working paper published by Princeton University (King & Watson working paper) in 2005. It is a foundational spectral analysis of US monetary and price data that finds the spectral peak in price inflation occurs at a periodicity of 51 quarters, notably lower frequency than the 20-quarter periodicity peak found in money growth and real output variables.
The analysis focuses on 51 quarters (~12.75 years, price inflation spectral peak), 20 quarters (~5 years, money growth/real variable spectral peak). It also considers empirical spectral shape analysis of US monetary data. This gives the cycle claim a specific numerical and evidential setting rather than presenting periodicity only as a visual impression.
The authors observe the typical spectral shape in price inflation; however, the peak in the spectrum of price inflation lies at a lower frequency than does the peak in the spectrum of money growth and real variables: it occurs at a periodicity of 51 quarters rather than 20 quarters. The interpretation is strongest when inflation regimes, monetary-policy changes, non-stationarity and out-of-sample performance are considered.
For cycles researchers, the article brings together interest rate cycles, inflation periodicity, money growth, business cycle. It is relevant to interest-rate cycle research because yield movements combine policy regimes, inflation dynamics, business cycles and long-frequency components.
Because it is a peer-reviewed working paper, the article is a strong starting point for discussion in the Interest Rates forum, although its conclusions should still be compared with later replications and updated datasets.
Source details and credits
- Source / publisher: Princeton University (King & Watson working paper)
- Source type: Peer-reviewed working paper
- URL type: PDF
- Credits: Princeton University (King & Watson working paper)
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