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A Note on Excess Money Growth and Inflation Dynamics: Evidence from Threshold Regression

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  • Saumitra N Bhaduri

    ()
    (Madras School of Economics)

  • S. Raja Sethu Durai

    (Pondicherry University)

Abstract

We test the effect of excess money growth on inflation using Threshold Regression technique developed by Hansen (2000). The empirical test is conducted using annual data from India for the period from 1953-54 to 2007-08. The results clearly exhibits that the relationship is not linear and without a strong credit growth, excess money growth has lesser inflationary effects.

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Bibliographic Info

Paper provided by Madras School of Economics,Chennai,India in its series Working Papers with number 2013-078.

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Length: 16 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:mad:wpaper:2013-078

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Related research

Keywords: Excess Money Growth; Quantity Theory of Money; Inflation; Threshold Regression;

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References

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  1. Gerlach, Stefan & Svensson, Lars E O, 2002. "Money and Inflation in the Euro-Area: A Case for Monetary Indicators?," CEPR Discussion Papers 3392, C.E.P.R. Discussion Papers.
  2. Luca Benati, 2006. "UK monetary regimes and macroeconomic stylised facts," Bank of England working papers 290, Bank of England.
  3. José Ferreira Machado & João Sousa, 2006. "Identifying asset price booms and busts with quantile regressions," Working Papers w200608, Banco de Portugal, Economics and Research Department.
  4. Oecd, 2006. "Are House Prices Nearing a Peak?: A Probit Analysis for 17 OECD Countries," OECD Economics Department Working Papers 488, OECD Publishing.
  5. Detken, Carsten & Smets, Frank, 2004. "Asset price booms and monetary policy," Working Paper Series 0364, European Central Bank.
  6. Lothian, James R, 1985. "Equilibrium Relationships between Money and Other Economic Variables," American Economic Review, American Economic Association, vol. 75(4), pages 828-35, September.
  7. Barbara Roffia & Andrea Zaghini, 2008. "Excess money growth and inflation dynamics," Temi di discussione (Economic working papers) 657, Bank of Italy, Economic Research and International Relations Area.
  8. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, vol. 70(5), pages 1005-14, December.
  9. Albert Jaeger, 2003. "The ECB's Money Pillar: An Assessment," IMF Working Papers 03/82, International Monetary Fund.
  10. Bruce E. Hansen, 1996. "Sample Splitting and Threshold Estimation," Boston College Working Papers in Economics 319., Boston College Department of Economics, revised 12 May 1998.
  11. Claudio E. V. Borio & Philip Lowe, 2004. "Securing sustainable price stability: should credit come back from the wilderness?," BIS Working Papers 157, Bank for International Settlements.
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Cited by:
  1. Asongu Simplice, 2013. "Correcting inflation with financial dynamic fundamentals: which adjustments matter in Africa?," Working Papers 13/003, African Governance and Development Institute..
  2. Simplice A. Asongu, 2013. "Fighting consumer price inflation in Africa: What do dynamics in money, credit, efficiency and size tell us?," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 5(1), pages 39-60, February.
  3. Asongu Simplice, 2013. "Does Money Matter in Africa? New Empirics on Long- and Short-run Effects of Monetary Policy on Output and Prices," Working Papers 13/005, African Governance and Development Institute..
  4. Asongu, Simplice A, 2013. "How would monetary policy matter in the proposed African monetary unions? Evidence from output and prices," MPRA Paper 48496, University Library of Munich, Germany.
  5. Asongu, Simplice, 2013. "A note on the long-run neutrality of monetary policy: new empirics," MPRA Paper 56796, University Library of Munich, Germany.
  6. Asongu Simplice, 2013. "New Empirics of monetary policy dynamics: evidence from the CFA franc zones," Working Papers 13/016, African Governance and Development Institute..

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