A Relook at the Short-Run Causality Between Real GDP and Money Supply in India Since the 1950s

Download or read book A Relook at the Short-Run Causality Between Real GDP and Money Supply in India Since the 1950s written by Sanjib Debnath and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The present paper tests for short-run causality between money supply and Gross Domestic Product (GDP) in India during the period 1954-2013 adopting the Toda and Yamamoto (1995) modified Granger causality approach under a Vector Autoregression (VAR) environment. Exponentially detrended annual time series data at constant price of GDP, narrow money supply and broad money supply are used for this purpose. Alternative tests for structural breaks reveal significant breaks in the variables around the period 2001-2004. The findings are suggestive of a bidirectional causality between broad money and GDP, while narrow money is found to significantly Granger-cause GDP, but the converse is insignificant implying unidirectional causality from narrow money to GDP. The study is of the view that both narrow and broad money in India have a long-run equilibrium relationship with real GDP and short-run causal relations are therefore anticipated.