An Empirical Model of Price and Output Behavior

This paper proposes a model of short-run price and output behavior and undertakes an initial empirical investigation of the model with data from the manufacturing sector of the U.S. Economy. The model provides a relatively precise specification of the various factors that influence prices and output, and joint maximum likelihood techniques are used to estimate the parameters of the model. The empirical results support the proposition that demand-oriented forces primarily influence output while cost-push forces primarily influence prices and indicate that real interest rates affect both prices and output.