An econometric analysis of the effectiveness of fiscal and monetary policies in India

Anand Nadar

No 39s7a, OSF Preprints from Center for Open Science

Abstract: This study investigatesthe effectiveness of fiscal policy and monetary policy in India. We collected the time series data for India ranging from 1960 to 2019 from World Development Indicator (WDI). We applied the bound test co-integration approach to check the long-run relationship between fiscal policy, monetary policy, and economic growth in the context of Indian economy. The short-run and long-run effects of fiscal policy and monetary policy have been estimated using ARDL models. The results showed that there is a long-run relationship between fiscal and monetary policies with economic growth. The estimated short-run coefficients indicated that a few immediate short run impacts of fiscal and monetary policies are insignificant. However, the short-run impacts become significant as time passes. The long-run results suggested that the long-run impact of both fiscal and monetary policies on economic growth are positive and significant. More specifically, the GDP level increases if the money supply and government expenditure increase (Expansionary fiscal and monetary policies). On the other hand, the GDP level decreasesif the money supply and government expenditure decrease (contractionary fiscal and monetary policies). Therefore, this study recommends to use expansionary policies to spur the Indian economy.

Date: 2021-04-02
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:osf:osfxxx:39s7a

DOI: 10.31219/osf.io/39s7a

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