Common and Codependent Cycles

Abstract

The main objective of this chapter is to assess the strength of shared dynamics between Canadian monetary aggregates and prices, nominal income, and real income. The distinctive feature of our contribution is that we test for shared cycles (and when appropriate for codependent cycles) using the recently developed testing procedures by Engle and Kozicki (1993) and Vahid and Engle (1993). Our main objective is to determine the strength of the dynamic relationship between monetary aggregates and prices, nominal income, and real income, judged according to whether they respond in a similar manner to cycle generating innovations. The Engle and Kozicki (1993) and Vahid and Engle (1993) approach provides a stronger and more informative test of cyclical comovements than the previously used Hodrick-Prescott (HP) contemporaneous and cross-correlation analysis.