The Money Supply Process in India: Identification, Analysis and Estimation
AbstractA new specification is employed to test for the degree of endogeneity of commercial bank credit, and its response to structural variables relevant to the Indian context. Our specification allows us to both identify money supply in a single equation, and disentangle the contribution of the Central and the Commercial Banks to the money supply process. Bank credit reacted more to financial variables and had dissimilar responses to food and manufacturing prices and output. Instead of interest rates, sectoral returns played a major role. Monetary policy broadly succeeded in preventing an explosive growth in money supply and reined in inflationary expectations. But by targeting manufacturing prices it harmed real output. The estimated structure implies that it would be more efficient to target agricultural prices for inflation control. A monetary contraction should be completed earlier than in the past, and should coincide with a rise in food prices. Information available in the systematic structural features can be exploited in designing monetary policy.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 24632.
Date of creation: Jul 2000
Date of revision:
Publication status: Published in Indian Economic Journal 1.48(2000): pp. 90 -102
Money supply endogeneity; identification; information; sectoral prices;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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