Journal of Indian School of Political Economy

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Are Prices Countercyclical? Evidence from India


Affiliations
1 Mumbai School of Economics & Public Policy (Autonomous), University of Mumbai, India
     

   Subscribe/Renew Journal


This paper tries to document the stylised facts of the business cycle relating to prices (WPI Core & WPI) & inflation with respect to output for India from April 2005 to October 2016 using various univariate trend-cycle decomposition techniques. Both prices (WPI Core&WPI)&inflation are countercyclical with respect to output. In addition, using static cross-correlations we observe that prices (WPI Core & WPI) lead output by one month & inflation leads output by two months. Further, we apply Granger causality in the frequency domain and obtain a unidirectional causal relationship from WPI Core to output in the medium run (3 months to 12 months) to the long run (beyond 12 months). We also obtain a bidirectional causality between WPI & output as well as inflation & output in the medium run to the long run.

Keywords

Business Cycles, Detrending, Price, Inflation.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Agénor, P. R., C. J. McDermott, & E. S. Prasad, 2000; Macroeconomic fluctuations in developing countries: some stylised facts, The World Bank Economic Review, Vol. 14, No. 2.

  • Apergis, N., 1996; The Cyclical Behavior of Prices: Evidence from Seven Developing Countries, The Developing Economies, Vol. 34, No. 2.

  • Backus, D. K., & P. J. Kehoe, 1992; International evidence on the historical properties of business cycles, The American Economic Review.

  • Baxter, M., & R. G. King, 1999; Measuring business cycles: approximate band-pass filters for economic time series, The Review of Economics and Statistics, Vol. 81, No. 4.

  • Beaulieu, J. J., & J. A. Miron, 1993; Seasonal unit ischolar_mains in aggregateUS data, Journal of econometrics, Vol. 55, Nos. 1-2.

  • Beveridge, S., & C. R. Nelson, 1981; A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the ‘business cycle’, Journal of Monetary Economics, Vol. 7, No. 2.

  • Bjørnland, H. C., 2000; Detrending methods and stylised facts of business cycles in Norway-an international comparison, Empirical Economics, Vol. 25, No. 3.

  • Blanchard, O. J., & D. Quah, 1989; The dynamic effects of aggregate demand and supply disturbances, The American Economic Review, Vol. 79, No. 4.

  • Burns, A. F., & W. C. Mitchell, 1946; Measuring Business Cycles. NBER Books.

  • Burnside, C., 1998; Detrending and business cycle facts: A comment, Journal of Monetary Economics, Vol. 41, No.

  • Canova, F., 1998; Detrending and business cycle facts, Journal of monetary economics, Vol. 41, No. 3.

  • Chadha, B., & E. Prasad, 1993; Interpreting the cyclical behavior of prices, Staff Papers, Vol. 40, No. 2.

  • Chadha, B., & E. Prasad, 1994; Are prices countercyclical? Evidence from the G-7, Journal of Monetary Economics, Vol. 34, 2.

  • Chatfield, C., 2016; The analysis of time series: An Introduction, CRC press.

  • Christiano, L.J., &T.J. Fitzgerald, 2003; The band pass filter, International Economic Review, Vol. 44, No. 2.

  • Cooley, T.F., &L.E. Ohanian, 1991; The cyclical behavior of prices, Journal of Monetary Economics, Vol. 28, No. 1.

  • Enders, W., 1995; Applied econometric time series analysis.

  • Friedman, M., & A.J. Schwartz, 1982; The role of money, In Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867-1975. University of Chicago Press.

  • Ghate, C., R. Pandey,& I. Patnaik, 2013; Has India emerged? Business cycle stylised facts from a transitioning economy, Structural Change and Economic Dynamics, Vol. 24.

  • Gonzalez-Astudillo, M., & J.M. Roberts, 2016; When Can Trend-Cycle Decompositions Be Trusted?. Finance and Economics Discussion Series 2016-099. Washington: Board of Governors of the Federal Reserve System. Retrieved from the following website: https://doi.org/10.17016/FEDS.2016.099.

  • Granger, C.W., 1969; Investigating causal relations by econometric models and cross-spectral methods, Econometrica: Journal of the Econometric Society.

  • Hamilton, J.D., 1994; Time series analysis, (Vol. 2). Princeton: Princeton University Press.

  • Hamilton, J.D., 2017; Why you should never use the Hodrick-Prescott filter, (No. w23429). National Bureau of Economic Research.

  • Hylleberg, S., R.F., Engle, C.W., Granger,&B.S. Yoo, 1990; Seasonal integration and cointegration, Journal of Econometrics, Vol. 44, No. 1.

  • Issever Grochová, L., & P. Rozmahel, 2015; On the Ideality of Filtering Techniques in the Business Cycle Analysis Under Conditions of European Economy, Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Vol. 63, No. 3.

  • Kim, Y.W., 1996; Are prices countercyclical? Evidence from East Asian countries, Federal Reserve Bank of St. Louis Review, Vol. 78, September/October.

  • King, R.G.,&S.T. Rebelo, 1993;Low frequency filtering and real business cycles, Journal of Economic Dynamics and Control, Vol. 17, Nos. 1-2.

  • Kydland, F.E., & E.C. Prescott, 1990; Business cycles: Real facts and a Monetary Myth, Quarterly Review, (Federal Bank of Minneapolis).

  • Lemmens, A., C. Croux, & M.G. Dekimpe, 2008; Measuring and testing Granger causality over the spectrum: An application to European production expectation surveys, International Journal of Forecasting, Vol. 24, No. 3.

  • Li, X., 2015; The cyclical behavior of prices and inflation (Doctoral dissertation, University of Missouri-Columbia).

  • Lucas, R.E., 1977; Understanding business cycles, In Carnegie-Rochester conference series on public policy, Vol. 5, North-Holland.

  • Mankiw, N.G., 1989; Real business cycles: Anew Keynesian perspective, The Journal of Economic Perspectives, Vol. 3, No. 3.

  • Olson, M., 1989; A microeconomic approach to macroeconomic policy, The American Economic Review, Vol. 79, No. 2.

  • Pakko, M.R., 2000; The cyclical relationship between output and prices: An analysis in the frequency domain, Journal of Money, Credit and Banking.

  • Pierce, D.A., 1979; R-Squared measures for time series, Journal of the American Statistical Association, Vol. 74, No. 368.

  • Ravn, M.O., & H. Uhlig, 2002; On adjusting the HodrickPrescott filter for the frequency of observations, The review of economics and statistics, Vol. Vol. 84, No. 2.

  • RBI, 2002; Report of the Working Group on the Economic Indicators, Mumbai: Reserve Bank of India.

  • RBI, 2006; Report of Technical Advisory Group on Development of Leading Economic Indicators for Indian Economy, Mumbai: Reserve Bank of India.

  • Sims, C.A., 1972; Money, income, and causality, The American economic review, Vol. 62,No. 4.

  • Smith, R.T., 1992; The cyclical behavior of prices, Journal of Money, Credit and Banking, Vol. 24, No. 4.


Abstract Views: 386

PDF Views: 0




  • Are Prices Countercyclical? Evidence from India

Abstract Views: 386  |  PDF Views: 0

Authors

Mayank Gupta
Mumbai School of Economics & Public Policy (Autonomous), University of Mumbai, India

Abstract


This paper tries to document the stylised facts of the business cycle relating to prices (WPI Core & WPI) & inflation with respect to output for India from April 2005 to October 2016 using various univariate trend-cycle decomposition techniques. Both prices (WPI Core&WPI)&inflation are countercyclical with respect to output. In addition, using static cross-correlations we observe that prices (WPI Core & WPI) lead output by one month & inflation leads output by two months. Further, we apply Granger causality in the frequency domain and obtain a unidirectional causal relationship from WPI Core to output in the medium run (3 months to 12 months) to the long run (beyond 12 months). We also obtain a bidirectional causality between WPI & output as well as inflation & output in the medium run to the long run.

Keywords


Business Cycles, Detrending, Price, Inflation.

References