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The Determinants of Inflation in India: The Bounds Test Analysis

Md Qaiser Alam and Md Shabbir Alam
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Md Qaiser Alam: Department of Economics, D.S (P.G) College, Aligarh, Uttar Pradesh, India
Md Shabbir Alam: Department of Accounting & Finance, CCBA, Dhofar University, Oman

Authors registered in the RePEc Author Service: Md Shabbir Alam

International Journal of Economics and Financial Issues, 2016, vol. 6, issue 2, 544-550

Abstract: India is facing a fast rise in the general price level for the last couple of years. This paper seeks to empirically examine the sources of inflation in India both in the long-run and in the short-run by using the co-integration method developed by Pesaran et al. (2000). The empirical findings suggests that in the long-run money supply (MS), depreciation of the rupee and supply bottlenecks puts a pressure on the domestic price level by causing inflation to rise in the country. The analysis reveals that in the long-run domestic factors as monetary growth and supply bottlenecks dominates the external factors for a rise in the domestic prices in the economy. The short-run analysis also reveals that domestic factor MS and supply bottlenecks dominate the external factor as a measure cause for a persistent rise in the price level in the country. The supply bottlenecks are though a significant factor in the short-run, but its importance in the long-run is relatively small

Keywords: Inflation; Money Supply; Exchange Rate; World Price; Gross Domestic Product Gap; Bounds Test; Error Correction Model (search for similar items in EconPapers)
JEL-codes: E31 E51 D51 F43 (search for similar items in EconPapers)
Date: 2016
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