Causality between Monetary Expansion and the Price Level in India since 1950s – A Re-Examination
Pages 154-164
Sanjib Debnath and Ritwik Mazumder

DOI: http://dx.doi.org/10.6000/1929-7092.2016.05.13

Published: 11 May 2016

Abstract: This paper has tested short run causality between broad money supply and whole-sale price index (WPI) in India during 1951-2013 adopting a Toda-Yamamoto (1995) modified Granger causality approach under a VAR environment. Exponentially detrended annual time series data on broad money supply and the whole-sale price index are used for this purpose. Alternative tests for structural breaks reveal significant but dissimilar breaks in the variables. The empirical results are suggestive of a uni-directional causality from broad money supply to WPI. The study further finds that broad money supply and WPI in India have a long-run co-integrating relationship and short run causal relations could hence be expected.