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

  • Saumitra N Bhaduri

    ()

    (Madras School of Economics)

  • S. Raja Sethu Durai

    (Pondicherry University)

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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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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  1. Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November.
  2. Roffia, Barbara & Zaghini, Andrea, 2007. "Excess money growth and inflation dynamics," Working Paper Series 0749, European Central Bank.
  3. Albert Jaeger, 2003. "The ECB'S Money Pillar; An Assessment," IMF Working Papers 03/82, International Monetary Fund.
  4. 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.
  5. Detken, Carsten & Smets, Frank, 2004. "Asset price booms and monetary policy," Working Paper Series 0364, European Central Bank.
  6. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  7. 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.
  8. 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.
  9. Luca Benati, 2005. "U.K. Monetary Regimes and Macroeconomic Stylised Facts," Computing in Economics and Finance 2005 107, Society for Computational Economics.
  10. Oecd, 2006. "Are House Prices Nearing a Peak?: A Probit Analysis for 17 OECD Countries," OECD Economics Department Working Papers 488, OECD Publishing.
  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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