Inflation-Industrial Growth Nexus in India – A Revisit Through Continuous Wavelet Transform

We study the inflation-industrial growth nexus in India using the methodology of wavelets. More specifically, cross wavelet power spectrum, cross wavelet coherency, and wavelet phase angle, tools of Continuous Wavelet Transform are used to unravel time and frequency dependent relationships between industrial growth and inflation. It is shown that inflation and industrial growth are negatively related at low frequencies having time dynamics of eight to sixteen months, with inflation leading industrial growth for almost whole of the time period considered.