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Are Prices Countercyclical? Evidence from India
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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.
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