The Indian inflation–growth relationship revisited: robust evidence from time–frequency analysis
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Date
2019-06-03
Journal Title
Journal ISSN
Volume Title
Publisher
Taylor and Francis group
Abstract
This article re-visits the inflation–growth nexus in India using the tools of wavelet, i.e. wavelet correlation, wavelet cross-correlation and scale by scale Granger causality test. Wavelet crosscorrelation analysis shows that at the shortest scales inflation and economic growth were independent; at medium scales, there exists feedback effect; and at higher scales, only economic growth is leading to inflation. Furthermore, we find: (a) high and increasing dependence between inflation and economic growth, particularly after mid-2002; (b) high-frequency components of economic growth Granger-cause low-frequency component of CPI-based inflation and vice-versa, and at all scales economic growth Granger-cause inflation at scales of 4–6 and no evidence of causality was detected from WPI-based inflation to economic growth; (c) results indicate that there is no long-run causal link between inflation and economic growth. This study presents new insights for policymakers to sustain economic development by using inflation as an economic tool in India.
Description
Taylor and francis, pages;1-18.
Keywords
Inflation-growth; nexus; time-frequency relationship; wavelet cross-correlation; India