Analyzing U.S. GDP-Debt-Inflation Linkages in the Time-Frequency Domain

We add to the discussion on the role of debt-to-GDP and inflation in the U.S. real GDP per capita and its variation from 1966 to 2022. We use Global Wavelet Power Spectrum, Multivariate Coherency and Partial Coherency, Phase-Difference and Gain. We find complex phasic and anti-phasic co-movements between business and growth cycles versus debt and inflation cycles. Moreover, most relationships between debt and GDP are given by anti-phasic leadership of the debt (zero to 4-year frequency period), while inflation can lead growth in the opposite direction (zero to 8-year frequency period). We have interesting findings over NBER recessions, and our most recent evidence captures the effects of the pandemic. This research is helpful in the current discussion about the possibility of defaulting on the U.S. debt and controlling inflation.