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Macroeconomic Relationship in India: ARDL Evidence on Cointegration and Causality

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  • Inder Sekhar Yadav
  • M.A. Lagesh

Abstract

The main objective of the paper is to estimate the dynamic interrelation among the macroeconomic variables viz., real output, money, price, interest rate and exchange rate using monthly data for India covering the period from 1991:1 to 2007:12 using ARDL approach to cointegration. The bounds test revealed that there exists a long-run relation between real output, money supply, interest rate and exchange rate when the price variable was the dependent variable. Also, a long-run relationship between real output, money supply, price and interest rate was found when exchange rate was the dependent variable. However, reverse cointegration relationships were not noticed when the real output, money supply and interest rate were the dependent variables. The short-run causality found no evidence of causality between real output and money and a unidirectional causality running from price and interest rate to real output was found. The exchange rate was found independent to the changes in real output. The exchange rate and price were found to be independent to changes in money. Further, it was noticed that the price is caused by output, money, interest rate and exchange rate. The causality was found to be neutral from output, money, price, and exchange rate on interest rate. Finally, it was found that output, money, price and interest rate has no effect on exchange rate in the short-run.

Suggested Citation

  • Inder Sekhar Yadav & M.A. Lagesh, 2011. "Macroeconomic Relationship in India: ARDL Evidence on Cointegration and Causality," Journal of Quantitative Economics, The Indian Econometric Society, vol. 9(1), pages 156-168.
    • Handle: RePEc:jqe:jqenew:v:9:y:2011:i:1:p:156-168
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    References listed on IDEAS

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    Cited by:

    1. P., Srinivasan & M., Kalaivani, 2013. "On the Temporal Causal Relationship between Macroeconomic Variables: Empirical Evidence from India," MPRA Paper 46803, University Library of Munich, Germany.
    2. Rasool, Haroon & Adil, Masudul Hasan & Tarique, Md, 2018. "An Empirical Evidence of Dynamic Interaction among price level, interest rate, money supply and real income: The case of the Indian Economy," MPRA Paper 87452, University Library of Munich, Germany.
    3. Srinivasan Palamalai & Kalaivani Mariappan & Christopher Devakumar, 2014. "On the Temporal Causal Relationship Between Macroeconomic Variables," SAGE Open, , vol. 4(1), pages 21582440145, February.

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