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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.

Suggested Citation

  • 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. 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.
    2. repec:spr:jqecon:v:15:y:2017:i:3:d:10.1007_s40953-016-0059-y is not listed on IDEAS

    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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