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A note on excess money growth and inflation dynamics: evidence from threshold regression


  • Saumitra, Bhaduri
  • Raja, Sethudurai


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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  • Saumitra, Bhaduri & Raja, Sethudurai, 2012. "A note on excess money growth and inflation dynamics: evidence from threshold regression," MPRA Paper 38036, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38036

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    References listed on IDEAS

    1. Albert Jaeger, 2003. "The ECB'S Money Pillar; An Assessment," IMF Working Papers 03/82, International Monetary Fund.
    2. Luca Benati, 2005. "U.K. Monetary Regimes and Macroeconomic Stylised Facts," Computing in Economics and Finance 2005 107, Society for Computational Economics.
    3. 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.
    4. DETKEN Carsten & SMETS Frank, "undated". "Asset Price Booms and Monetary Policy," EcoMod2003 330700042, EcoMod.
    5. Barbara Roffia & Andrea Zaghini, 2007. "Excess Money Growth and Inflation Dynamics," International Finance, Wiley Blackwell, vol. 10(3), pages 241-280, December.
    6. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, vol. 70(5), pages 1005-1014, December.
    7. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
    8. 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.
    9. Lothian, James R, 1985. "Equilibrium Relationships between Money and Other Economic Variables," American Economic Review, American Economic Association, vol. 75(4), pages 828-835, September.
    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. 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.
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    Cited by:

    1. Simplice A. Asongu, 2014. "Does money matter in Africa?: New empirics on long- and short-run effects of monetary policy on output and prices," Indian Growth and Development Review, Emerald Group Publishing, vol. 7(2), pages 142-180, November.
    2. Mohammad Mirbagherijam, 2014. "Thresholds Effect of Money Growth on Inflation in Iran," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(9), pages 319-329, September.
    3. Simplice A. Asongu, 2014. "Correcting Inflation with Financial Dynamic Fundamentals: Which Adjustments Matter in Africa?," Journal of African Business, Taylor & Francis Journals, vol. 15(1), pages 64-73, April.
    4. Simplice Asongu, 2014. "How Would Monetary Policy Matter In The Proposed African Monetary Unions? Evidence From Output And Prices," The African Finance Journal, Africagrowth Institute, vol. 16(2), pages 34-63.
    5. Asongu, Simplice A., 2014. "A note on the long-run neutrality of monetary policy: new empirics," European Economic Letters, European Economics Letters Group, vol. 3(1), pages 1-6.
    6. Simplice Asongu, 2016. "New empirics of monetary policy dynamics: evidence from the CFA franc zones," African Journal of Economic and Management Studies, Emerald Group Publishing, vol. 7(2), pages 164-204, June.
    7. 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, April.

    More about this item


    Excess Money Growth; Quantity Theory of Money; Inflation and Threshold Regression;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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