Relationship between Inflation, Interest, and Output: India's Case Study
SURGE 2013
Project Report
Relationship among Inflation, Interest rate and Output: A Case Study of India
Submitted by Abhishek Gaurav Department of Humanities and Social Sciences Indian Institute of Technology, Kanpur Kanpur – 208016
Under the guidance of Dr. Surajit Sinha Department of Humanities and Social Sciences Indian Institute of Technology, Kanpur Kanpur-208016 India
RELATIONSHIP AMONG INFLATION INTERST RATE AND OUTPUT: A CASE STUDY OF INDIA
Abhishek Gaurav
2
Department of Humanities and Social Sciences Indian Institute of Technology, Kanpur Kanpur (UP) – 208016 Email id: abhishg@iitk.ac.in
Mentor Dr. Surajit Sinha Department of Humanities and Social Sciences Indian Institute of Technology, Kanpur Kanpur (UP) – 208016 Email id: suraji@iitk.ac.in
ABSTRACT
The objective of the study is to examine the relationship between the key macroeconomic variables inflation, interest rate and output in the context of a developing economy like India. Economic literature is replete with papers examining the trade-offs that exist between growth and inflation and the role that the interest rate plays in optimizing it. Building upon such theoretical framework, the paper utilizes time series models to analyse the data .The results establish that there is, indeed a trade-off existing among these variables, however, the monetary institutions, through an effective interest rate management policy, can stimulate growth without compromising with the price level. An important point to note is that the relationship differs in the long run and short run analysis. The paper, in addition to dealing with the causal relationships among the variables, also discusses the forecast about these variables and the extent of their variability.
RELATIONSHIP AMONG INFLATION INTERST RATE AND OUTPUT: A CASE STUDY OF INDIA
3
CONTENTS
I. II.
Introduction……………………………………………………………………..4 Theoretical Background………………………………………………………...4
III.
Empirical
Project Report
Relationship among Inflation, Interest rate and Output: A Case Study of India
Submitted by Abhishek Gaurav Department of Humanities and Social Sciences Indian Institute of Technology, Kanpur Kanpur – 208016
Under the guidance of Dr. Surajit Sinha Department of Humanities and Social Sciences Indian Institute of Technology, Kanpur Kanpur-208016 India
RELATIONSHIP AMONG INFLATION INTERST RATE AND OUTPUT: A CASE STUDY OF INDIA
Abhishek Gaurav
2
Department of Humanities and Social Sciences Indian Institute of Technology, Kanpur Kanpur (UP) – 208016 Email id: abhishg@iitk.ac.in
Mentor Dr. Surajit Sinha Department of Humanities and Social Sciences Indian Institute of Technology, Kanpur Kanpur (UP) – 208016 Email id: suraji@iitk.ac.in
ABSTRACT
The objective of the study is to examine the relationship between the key macroeconomic variables inflation, interest rate and output in the context of a developing economy like India. Economic literature is replete with papers examining the trade-offs that exist between growth and inflation and the role that the interest rate plays in optimizing it. Building upon such theoretical framework, the paper utilizes time series models to analyse the data .The results establish that there is, indeed a trade-off existing among these variables, however, the monetary institutions, through an effective interest rate management policy, can stimulate growth without compromising with the price level. An important point to note is that the relationship differs in the long run and short run analysis. The paper, in addition to dealing with the causal relationships among the variables, also discusses the forecast about these variables and the extent of their variability.
RELATIONSHIP AMONG INFLATION INTERST RATE AND OUTPUT: A CASE STUDY OF INDIA
3
CONTENTS
I. II.
Introduction……………………………………………………………………..4 Theoretical Background………………………………………………………...4
III.
Empirical