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Modeling Inflation in India: The Role of Money

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  • Kishor, N. Kundan

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.

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  • Kishor, N. Kundan, 2009. "Modeling Inflation in India: The Role of Money," MPRA Paper 16098, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16098
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    Cited by:

    1. Biswajit Maitra & Tafajul Hossain, 2020. "Inflation in India: causes and anti-inflationary policy perception," International Journal of Economic Policy Studies, Springer, vol. 14(2), pages 363-387, August.
    2. Kushal Banik Chowdhury & Nityananda Sarkar, 2017. "Is the Hybrid New Keynesian Phillips Curve Stable? Evidence from Some Emerging Economies," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(3), pages 427-449, September.
    3. Cindrella Shah & Nilesh Ghonasgi, 2016. "Determinants and Forecast of Price Level in India: a VAR Framework," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(1), pages 57-86, June.
    4. Biswajit Maitra, 2016. "Inflation Dynamics in India: Relative Role of Structural and Monetary Factors," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(2), pages 237-255, December.
    5. Kushal Banik Chowdhury & Kaustav Kanti Sarkar & Srikanta Kundu, 2021. "Nonlinear relationships between inflation, output growth and uncertainty in India: New evidence from a bivariate threshold model," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 469-493, July.

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    More about this item

    Keywords

    Inflation. Monetary Policy; Indian Economy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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