Goyal, Ashima and Dash, Shridhar (2000): The Money Supply Process in India: Identification, Analysis and Estimation. Published in: Indian Economic Journal , Vol. 48, No. 1 (July 2000): 90 -102.
Download (132kB) | Preview
A 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.
|Item Type:||MPRA Paper|
|Original Title:||The Money Supply Process in India: Identification, Analysis and Estimation|
|Keywords:||Money supply endogeneity, identification, information, sectoral prices|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
|Depositing User:||ashima goyal|
|Date Deposited:||27. Aug 2010 00:38|
|Last Modified:||13. Feb 2013 07:22|
Ahluwalia, I.J. (1979) Behaviour of Prices and Output in India: A Macroeconometric Approach, Macmillan Company of India, New Delhi.
Bordo, M.D., and L. Jonung (1987) The Long-Run Behaviour of the Velocity of Circulation: The International Evidence, Cambridge University Press, Cambridge, Mass.
Chitre, V.S. (1986) Quarterly prediction of reserve money multiplier and money stock in India, Artha Vijnana, 28, 1-123.
Cooley, T.F. and S.F. LeRoy (1981) Identification and estimation of money demand, American Economic Review, 71, 825-844.
Engle, R.F. and Granger, C.W.J. (1987) Cointegration and error correction: representation, estimation and testing, Econometrica, 49, 251-270.
Foster, J. (1992) The determination of sterling M3, 1963-88: An evolutionary macroeconomic approach, The Economic Journal, 102, 481-496.
Goyal, A. (1994a) Industrial pricing and growth fluctuations in India, Indian Economic Review, 29, 13-32.
Goyal, A. (1994b) Growth dynamics: in a general equilibrium macroeconomic model for India, Journal of Policy Modeling, 16, 265-289.
Goyal, A. (1995) Putting structure on structural adjustment, Economic and Political Weekly, 30, 1013-1020.
Gupta, S.B. (1976) Factors affecting money supply: critical evaluation of Reserve Bank's analysis, Economic and Political Weekly, 11, 117-128.
Jadhav, N., (1990) Monetary modelling of the Indian economy: a survey, RBI Occasional Papers, 11, 83-152.
Johansen, S. and Juselius, K. (1990) Maximum likelihood estimation and inference on cointegration- with application to the demand for money, Oxford Bulletin of Economics and Statistics, 52, 169-210.
Joshi, V. and I.M.D. Little (1994) India: Macroeconomics and Political Economy 1964-1991, Oxford University Press, Delhi.
Krishnamurthy, K. and Pandit, V.N., Macroeconomic Modelling of the Indian Economy: Studies on Inflation and Growth, Delhi: Hindustan Publishing Corporation, (India), 1985.
Nachane, D.M. and Ray, D. (1989) The money multiplier: a reexamination of Indian evidence, The Indian Economic Journal, 37, 56-73.
Palley, T.I. (1994) Competing views of the money supply process: Theory and Evidence, Metroeconomica, 45:1, 67-88.
Rangarajan, C. and Arif, R.R. (1990) Money, output and prices: a macroeconometric model, Economic and Political Weekly, 25, 873-852.
Rangarajan, C. and Singh, A. (1984) Reserve money: concepts and policy implication for India, RBI Occasional Papers, 5, 1-26.
Rao, D.C., Venkatachalam, T.R. and Vasudevan, A. (1981) A short-term model to forecast monetary aggregates: some interim results, RBI Occasional Papers, 2, 113-140.
Rao, M.J.M., and Singh, B. (1995) Analytical foundations of financial programming and growth oriented adjustment, DRG study, DEAP, RBI, Bombay.
RBI,(1985) Report of the Committee to Review the Working of the Monetary System (S. Chakravarty, Chairman), Bombay.
RBI,(1987) Report of the Working Group on the Money Market (N. Vaghul, Chairman), Bombay.
Sims, C.A. (1980) Macroeconomics and reality, Econometrica, 48, 1-35.
Singh, A., Shetty, S.L. and Venktachalam, T.R. (1982) Monetary policy in India: issues and evidence, Supplement to the RBI Occasional Paper, 3, 1-133.