Defense Budget Growth and Inflation: A Wavelet-Based Study of the U.S. and Britain

Yu Wang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

Despite the extensive theoretical connections between defense budget growth and inflation, empirical findings based on traditional time-domain methods have been inconclusive. This study reexamines the issue from a time–frequency perspective. Applying continuous wavelet analysis to the U.S. and Britain, it shows empirical evidence in support of positive bilateral effects in both cases. In the bivariate context, U.S. defense budget growth promoted inflation at 2- to 4-year cycles in the 1840s and at 8- to 24-year cycles between 1825 and 1940. Conversely, inflation accelerated defense spending growth at 5- to 7-year cycles in the 1830s and at 25- to 64-year cycles between 1825 and 1940. Similarly, British defense budget growth spurred inflation at 8- to 48-year cycles between 1890 and 1940 and at 50- to 65-year cycles between 1790 and 1860. Inflation fueled the growth of defense spending at 7- to 20-year cycles between 1840 and 1870, in the 1940s, and in the 1980s. Preliminary results from multivariate analyses are also supportive, though there is a need for further research that is contingent on advancements in the wavelet method in the direction of simulation-based significance tests.

Original languageEnglish
Pages (from-to)260-284
Number of pages25
JournalPolitical Studies Review
Volume21
Issue number2
Early online date9 Jan 2022
DOIs
Publication statusE-pub ahead of print - 9 Jan 2022

Keywords

  • Britain
  • United States
  • defense spending
  • inflation
  • time series

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