Causality between Monetary Expansion and the Price Level in India since 1950s – A Re-Examination

Ritwik Mazumder () and Sanjib Debnath
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Ritwik Mazumder: Department of Economics, Assam University, Silchar, Assam 788011, India

Journal of Reviews on Global Economics, 2016, vol. 5, 154-164

Abstract: This paper has tested short run causality between broad money supply and whole-sale price index (WPI) in India during 1951-2013 adopting a Toda-Yamamoto (1995) modified Granger causality approach under a VAR environment. Exponentially detrended annual time series data on broad money supply and the whole-sale price index are used for this purpose. Alternative tests for structural breaks reveal significant but dissimilar breaks in the variables. The empirical results are suggestive of a uni-directional causality from broad money supply to WPI. The study further finds that broad money supply and WPI in India have a long-run co-integrating relationship and short run causal relations could hence be expected.

Keywords: Broad money supply; WPI; Modified Granger Causality; Toda-Yamamoto (1995) and VAR (search for similar items in EconPapers)
JEL-codes: C32 E50 E52 E59 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:lif:jrgelg:v:5:y:2016:p:154-164

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