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

Author

Listed:
  • Claudiu T. Albulescu

    (UPT - Universității Politehnica Timișoara [România] = Polytechnic University of Timişoara [Romania] = Université polytechnique de Timișoara [Roumanie], CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière [EA 2249] - UP - Université de Poitiers = University of Poitiers)

  • Cornel Oros

    (Axe 2 (2011-2016) : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS de Poitiers [Maison des sciences de l'homme et de la société de Poitiers] - Maison des sciences humaines et sociales de Poitiers [USR 3565] - UP - Université de Poitiers = University of Poitiers - CNRS - Centre National de la Recherche Scientifique, CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière [EA 2249] - UP - Université de Poitiers = University of Poitiers, LEO - Laboratoire d'Économie d'Orleans [UMR7322] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique)

  • Aviral Kumar Tiwari

    (ICFAI University Tripura)

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.

Suggested Citation

  • Claudiu T. Albulescu & Cornel Oros & Aviral Kumar Tiwari, 2014. "Revisiting the inflation - output gap relationship for France using a wavelet transform approach," Post-Print hal-00954189, HAL.
    • Handle: RePEc:hal:journl:hal-00954189
    DOI: 10.1016/j.econmod.2013.11.039
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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