Several authors have recently interpreted the ECB's two-pillar framework as separate approaches to forecast and analyse inflation at different time horizons or frequency bands. The ECB has publicly supported this understanding of the framework. This paper presents further evidence on the behaviour of euro area inflation using band spectrum regressions, which allow for a natural definition of the short and long run in terms of specific frequency bands, and causality tests in the frequency domain. The main finding is that variations in inflation are well explained by low-frequency movements of money and real income growth and high-frequency fluctuations of the output gap.

The fiscal response in India to deal with the contagion from the global crisis during 2008-10 was driven by the need to arrest a major slowdown in economic growth. However, there could be medium-term risks to the future inflation path, in the absence of timely fiscal consolidation. As highlighted in the paper, fiscal deficit could be seen to influence the inflation process through either growth of base money or higher aggregate demand. Empirical estimates over the sample period 1953-2009 suggest that one percentage point increase in the level of the fiscal deficit could cause about a quarter of a percentage point increase in the Wholesale Price Index (WPI). The paper emphasises that the importance of fiscal space in the India specific context needs to be seen in terms of not only the usual output stabilisation role of fiscal policy but also the need for use of fiscal measures to contain inflationary pressures that often arise from temporary but large supply shocks.• JEL Classification: E31, H62, H63•

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This article constructs financial condition indices (FCIs) for India and explores their predictive ability of business cycle. The estimated FCIs indicate substantial tightening in financial conditions in India since the global financial crisis barring a brief phase during 2010–11. Unlike in the literature, it shows the importance of standardising the financial variables by removing the influence of unit of measurement and not purging the influence of past economic activity as that improves the forecasting ability of FCI about business cycle. In predicting GDP growth, principal component analysis-based FCI outperforms vector autoregression-based FCI but both are better than OECD composite leading indicator, and indicate an upturn in business cycle in India in 2015–16. JEL Classification: E5, E17, E44