Identifying Inflation Dynamics in India in the Post Reform Period

Haroon Rasool

South Asian Journal of Macroeconomics and Public Finance, 2023, vol. 12, issue 1, 53-82

Abstract: The present study aims at examining the inflation dynamics in Indian context with a particular focus on its determinants from 1991–1992Q1 to 2017–2018Q4. The purpose of this study is to investigate the role of monetary, fiscal, structural and external variables in explaining inflationary tendencies in India in the post economic reform period. To identify the determinants fuelling the inflationary tendencies, the study employs ARDL bounds testing procedure followed by the VECM Granger causality test. The findings indicate that interest rate shock and output growth mitigates inflation while rupee depreciation, money supply generate inflationary pressures in the economy. Moreover, fiscal deficit has inflationary impact only in the short run. The positive link between inflation and openness refutes the applicability of Romer’s hypothesis in the Indian context. VECM based Granger causality indicates that money supply and interest rate causes both output and inflation, which suggests monetary policy in India has an important role to play in the process of economic growth and price stability. JEL Classification: E3, E4, F6, E620

Keywords: Inflation; money; interest rate; output; exchange rate; fiscal deficit; trade openness; ARDL; Granger causality VECM test (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/22779787221097782 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:smppub:v:12:y:2023:i:1:p:53-82

DOI: 10.1177/22779787221097782

Access Statistics for this article

More articles in South Asian Journal of Macroeconomics and Public Finance
Bibliographic data for series maintained by SAGE Publications ().