Role of Money in Determining Output and Prices of the Indian Economy

Abstract

The study has empirically examined the relationship between money, price and output of the post- FRBM Indian economy, i.e., from the first quarter of 2003-2004 to the second quarter of 2019-2020, to see whether there exists any strong evidence of demand-pull or money driven inflation in India. Also, it has examined how the output is being affected by the money supply during the study period. The study has found that inflation in the Indian economy is basically cost-push in nature and a positive relationship between output, inflation, FDI and interest rate is found during our study period. So, we can suggest that given the complex and multidirectional relationships among the macro variables, a multiple indicator approach was better to respond to economic fluctuations than inflation-targeting regime of monetary policy.