We investigate empirically the stability of the correlation between ou
tput growth and inflation using a technique that allows for changes in
regime. We look at recent quarterly data for the G4 and at historical
data for the U.S. and U.K. We find evidence of changes both in means
and variances in both sources of data. In the quarterly data we find t
hat the covariance between output growth and inflation is typically ne
gative. In the historical data we find, as suggested in previous studi
es, that inflation was procyclical especially in the inter-war years,
but has been countercyclical in the post-war period.