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Revisiting the inflation - output gap relationship for France using a wavelet transform approach

Claudiu Albulescu (), Cornel Oros and Aviral Tiwari ()

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Abstract: The purpose of the paper is to revisit the inflation-output gap relationship using a new approach known as the wavelet transform. This approach combines the classical time series analysis with frequency domain analysis and presents the advantages of assessing the co-movement of the two series in the context of both time and frequencies. Using discrete and continuous wavelet methodologies for the study of the inflation-output gap nexus in the case of France, we determine that the output gap is able to predict the inflation dynamics in the short- and medium-runs, and these results have important implications to the Phillips curve theory. More precisely, we discovered that in a discrete wavelet framework, the short- and medium-term fluctuations of both variables are more closely correlated, whereas the continuous wavelet analysis states that the output gap leads inflation in short- and medium-runs.

Keywords: Phillips curve; Output gap; Inflation co-movement; Wavelet framework; France (search for similar items in EconPapers)
Date: 2014
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Published in Economic Modelling, Elsevier, 2014, 37, pp.464-475

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Journal Article: Revisiting the inflation–output gap relationship for France using a wavelet transform approach (2014) Downloads
Working Paper: Revisiting the Inflation - Output Gap Relationship for France using a Wavelet Transform Approach (2013)
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