Core Inflation and Economic Growth, Does Nonlinearity Matters? A Nonlinear Granger Causality Analysis

Abstract

T

his empirical analysis endeavors to trace out the causal nexus between core inflation and economic growth from the perspective of twenty worlds' leading economy with the help of the nonlinear Granger causality approach by using time series data from 1981 to 2016. Based on nonlinear Granger causality results, it has been found that there is unidirectional casualty running from core inflation to economic growth in Belgium, Denmark, Franc, Greece, India, Norway, and Portugal as well as Sweden. In these countries, core inflation is causing economic growth. As per as Australia, Canada, Germany, Greece, Japan, New Zealand, Portugal, Sweden, Switzerland, and the United Kingdom is concerned the outcome of causality analysis documents that there is unidirectional causality running from economic growth towards the core inflation. Finally, the analysis also manifests that there is no causality running from core inflation towards the economic growth and vice-versa in Ireland, Israel, Netherlands, and Spain.