Abstract: In this paper, we study the short-run and long-run comovement between prices
and real activity in the G7 countries during the postwar period using VAR forecast errors
and frequency domain filters. We find several patterns of the correlation coefficients that
are robust across countries and time periods; typically, the correlation coefficients at
long-run horizons are significantly negative and the correlation coefficients at short-run
horizons are substantially higher. Additionally, there is evidence of positive correlation at
short-run forecast horizons for some countries.