Modeling Inflation in India: The Role of Money

N Kishor

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the role of the real money gap- the deviation of real money balance from its long-run equilibrium level- for predicting inflation in India. Using quarterly data on manufacturing inflation from 1982 to 2007, we find that the real money gap is a significant predictor of inflation in India. Our results show that this variable is a better predictor of future inflation at quarterly horizon than the deviation of broad money growth from its target for the whole sample period. We also document a break in the overall predictability of inflation in the last quarter of 1995. We find that except for the real money gap, the forecasting power of other predictors under study has declined considerably after 1995.

Keywords: Inflation. Monetary Policy; Indian Economy (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: MODELING INFLATION IN INDIA: THE ROLE OF MONEY (2012)
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