Causality deficit-inflation: Wavelet Transform

Abstract

Few researchers have addressed the problem of the causality inflation-deficits, and even Previous worktreated this causality they have only focused on the Granger causality technique in which the results of thisapproach raises many doubts. This investigation aim to study the relationship between inflation and the pri-mary deficit using the wavelet transform for different euro area member countries from 1980 until 2014 withquarterly data. We have characterized the inflation-primary deficit relationship in a time-frequency scale.First we found that the deficit causes inflation in log term. We detected also, that inflation-primary deficitrelationship is highly consistent during the post-financial crisis in the euro area in the long run. Finally wecan judge through the wavelet transform that this relationship is non linear