Dynamics of Inflation in India: Bounds Testing Approach
High inflation is widely believed to hamper economic growth and is harmful to social justice, thereby lending credence to emergence of low and stable inflation as a key objective of economic policy. India witnesses a rise in inflation during 1970s and 1980s due to various demand and supply side factors. Since then inflation has always remained a debateable issue among researchers and policy makers regarding its causes and management. Thus, the Present study provides an empirical analysis of the factors accounting for inflation dynamics and examine the nature of longrun and shortrun relationship among the variables in India for the period 1970-2015. To this end, the study applies auto-regressive distributive lag (ARDL) bounds testing approach to cointegration and Vector Error Correction Model to determine the direction of causality between the variables. The bounds test results indicate that there is a meaningful longrun relationship among the variables when inflation is considered as dependent variable. We find that money supply, interest rate, exchange rate and real output has a significant impact on the inflationary process in India both in the shortrun and longrun. The error correction term is found to be negative and significant which reinforces the long run equilibrium relationship among the variables. The paper concludes that inflation in India is explained by a combination of structural and monetary factors and consequently, study comes out with some important policy implications.
Disclaimer/Regarding indexing issue:
We have provided the online access of all issues and papers to the indexing agencies (as given on journal web site). It’s depend on indexing agencies when, how and what manner they can index or not. Hence, we like to inform that on the basis of earlier indexing, we can’t predict the today or future indexing policy of third party (i.e. indexing agencies) as they have right to discontinue any journal at any time without prior information to the journal. So, please neither sends any question nor expects any answer from us on the behalf of third party i.e. indexing agencies.Hence, we will not issue any certificate or letter for indexing issue. Our role is just to provide the online access to them. So we do properly this and one can visit indexing agencies website to get the authentic information.