Relationship between Money, Output and Price Level in India: A Granger Causality Approach
Journal Title: PRAGATI: Journal of Indian Economy - Year 2017, Vol 4, Issue 2
Abstract
The relationship between money supply, income and prices is still a contentious concern mostly between the Keynesians and Monetarists. The Keynesians emphasise that a change in income reflects changes in money through demand for money, which means that there exists a unidirectional causality from income to money without any criticism. The Monetarists claim that money is the most important cause leading to changes in income and prices. Therefore, the direction of causation runs from money to income and prices without any feedback. This article studies the association between these macroeconomic aggregates using time series method of pair wise Granger causality test on annual data of the Indian economy over the period 1950-51 to 2012-13. Lag length is favoured by using standard criteria through VAR estimation. The Monetarists view is strongly supported by the result of this study. It is understood from the paper that the monetary policy has a force on the Indian macroeconomic variables as there is a casual relationship between money supply to inflation and income. Nevertheless, these relationships of variables are sensitive to lag length selections.
Authors and Affiliations
M. Manikandan, N. Mani, P. Karthikeyan
Saving and Investment Pattern of Rural Households of Himachal Pradesh
Investment is one of the foremost concerns of every individual investor as their small savings of today are to meet the expenses of tomorrow. The savings and investments pattern by the people vary from person to person a...
Environmental Kuznets Curve: An Empirical Analysis in the Indian Context
The relationship between economic growth and environmental quality has been much under dispute. According to the EKC (Environmental Kuznets Curve) hypothesis, environmental damage increases in the early stages of economi...
An Analysis of Diseases Burden and Out of Pocket Health Expenditure among South Asian Countries
Health is an important determinant of human development, which is about enhancing freedom of human beings. Good health brings freedom to people to enjoy their life and attain desires. Incidence of diseases curtails this...
HDI and Gender Development Index: Current Status of Women Development in India
Economic reforms of 1990s have touched the lives of all Indians. Not just Indian economy but the society as a whole can be divided into pre and post liberalisation, privatisation, globalisation eras. Post LPG the Indian...
Relationship between Money, Output and Price Level in India: A Granger Causality Approach
The relationship between money supply, income and prices is still a contentious concern mostly between the Keynesians and Monetarists. The Keynesians emphasise that a change in income reflects changes in money through de...