Deficit, money and price: the Indian experience

Ashra, Sunil; Chattopadhyay, Saumen; Chaudhuri, Kausik

doi:10.1016/j.jpolmod.2004.03.010

Cited by 34 publications

(17 citation statements)

References 19 publications

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“…The above results have been on the expected lines given that till the complete phasing out of the ad hoc treasury bills in 1996-97, a sizable portion of the government deficit which could not be financed through market subscription was monetised. However, extending the period of analysis further beyond the automatic monetisation phase, Ashra et al (2004) found no-long relationship between fiscal deficit and net RBI credit to the Government and the latter with broad money supply. Thus, they concluded that there is no more any rationale in targeting fiscal deficit as a tool for stabilisation.…”

Section: Introductionmentioning

confidence: 86%

Fiscal Stimulus and Potential Inflationary Risks: An Empirical Assessment of Fiscal Deficit and Inflation Relationship in India

Khundrakpam¹,

Pattanaik²

2010

JEI

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The fiscal response in India to deal with the contagion from the global crisis during 2008-10 was driven by the need to arrest a major slowdown in economic growth. However, there could be medium-term risks to the future inflation path, in the absence of timely fiscal consolidation. As highlighted in the paper, fiscal deficit could be seen to influence the inflation process through either growth of base money or higher aggregate demand. Empirical estimates over the sample period 1953-2009 suggest that one percentage point increase in the level of the fiscal deficit could cause about a quarter of a percentage point increase in the Wholesale Price Index (WPI). The paper emphasises that the importance of fiscal space in the India specific context needs to be seen in terms of not only the usual output stabilisation role of fiscal policy but also the need for use of fiscal measures to contain inflationary pressures that often arise from temporary but large supply shocks.• JEL Classification: E31, H62, H63•

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Section: Introductionmentioning

confidence: 86%

Fiscal Stimulus and Potential Inflationary Risks: An Empirical Assessment of Fiscal Deficit and Inflation Relationship in India

Khundrakpam¹,

Pattanaik²

2010

JEI

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“…Bengali et al (1999) examined bidirectional causal relationship between money and income and unidirectional causal relationship from money supply to price level in Pakistan. Ashra et al (2004) found bidirectional causality between money supply & price level in India. Table 1 shows some literature support for Monetarist and Keynesian theory across countries.…”

Section: Literature Reviewmentioning

confidence: 98%

The Relationship between Money Supply, Price Level and Economic Growth In Pakistan: Keynesian versus Monetarist View

Mansoor

Shoukat

Bibi

et al. 2018

Review of Economic and Business Studies

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The objective of the study is to examine the relationship between money supply, price level and economic growth in the context of Pakistan by using Autoregressive Distributed Lag (ARDL) model, covered a period of 1980 to 2016. The results confirm the long-run relationship between the variables while using broad money supply as a response variable. However, in the price and income modeling, the variables do not support the cointegration relationship between the variables. The causality results confirmed the unidirectional relationship running from income to money supply, which implies that income do causes money supply in the short run, whereas money supply leads to inflation to support Monetarist view of inflation in a country. The results conclude that economic growth is imperative to stabilize money supply and price level through sound economic policies in a country.

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“…Second, despite the fact that Catao and Terrones (2005), and Lin and Chu (2013) found a strong positive relation between fiscal deficits and inflation among highinflation and developing countries, empirical results of this study reveal that shocks to budget deficit growth have no effect on real GDP growth, interest rate, money growth and therefore inflation. This finding, however, shares a conclusion with Barnhart andDarrat (1988), andAshra, Chattopadhyay, andChaudhuri (2004) in which budget deficits have no significant effect on money growth in OECD countries and India, respectively. And more importantly, this finding supports Nguyen and Nguyen (2010) in which there is no significant effect of budget deficits on inflation in Vietnam.…”

Section: Discussionmentioning

confidence: 52%

“…Their result showed that the monetary policy and fiscal policy were conducted independently in OECD countries where budget deficits had little or no impact on money growth. Similarly, Ashra, Chattopadhyay, and Chaudhuri (2004) conducted an empirical study for India and concluded that there was no systematic relationship between budget deficits and money growth. Burdekin and Wohar (1990) examined the relationship between budget deficits and money growth in eight countries including Canada, France, Italy, Japan, Switzerland, United Kingdom, United States and West Germany in the period 1960Q1-1985Q4 and concluded that countries whose central banks are independent from the governments exhibit a poor linkage between fiscal deficits and the evolution of money supply.…”

Section: Literature Reviewmentioning

confidence: 99%

Budget Deficit, Money Growth and Inflation: Empirical Evidence from Vietnam

Khieu

2014

SSRN Journal

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This study empirically examines the nexus among budget deficit, money supply and inflation by using a monthly data set from January 1995 to December 2012 and a SVAR model with five endogenous variables, inflation, money growth, budget deficit growth, real GDP growth and interest rate. Since real GDP and budget deficit are unavailable on the monthly basis, we interpolate those series using Chow and Lin's (1971) annualized approach from their annual series. Overall, we found that money growth has positive effects on inflation while budget deficit growth has no impact on money growth and therefore inflation. In addition, budget deficit is autonomous from shocks to other variables. The estimation results also reveal that the State Bank of Vietnam implemented tightening monetary policy in response to positive shocks to inflation by reducing money growth but the response was relatively slow because it took three months for the monetary authority to fully react to such shocks. Finally, interest rate was not an effective instrument for fighting inflation but it was significantly and positively influenced by inflation.

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Deficit, money and price: the Indian experience

Cited by 34 publications

References 19 publications

Fiscal Stimulus and Potential Inflationary Risks: An Empirical Assessment of Fiscal Deficit and Inflation Relationship in India

Fiscal Stimulus and Potential Inflationary Risks: An Empirical Assessment of Fiscal Deficit and Inflation Relationship in India

The Relationship between Money Supply, Price Level and Economic Growth In Pakistan: Keynesian versus Monetarist View

Budget Deficit, Money Growth and Inflation: Empirical Evidence from Vietnam

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