Responsiveness of Output & Prices to Monetary & Fiscal Shocks in India
Published: 2020
Author(s) Name: Harinder Kaur Gill |
Author(s) Affiliation: Senior Research Fellow (NET/UGC), Department of Economics, Panjab University, Chandigarh
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Abstract
The present study examines the
impact of expansionary monetary
and fiscal policies on the
output gap, price level and real
effective exchange rate in India
during 2001:M4 to 2018:M7
using sign restricted Bayesian
Vector Autoregressive modelling.
Innovation accounting analysis
indicates the fiscal dominance in
India as fiscal policy intervention
causes higher variations
than monetary policy in output
gap, price level and exchange
rate. Since fiscal policy impulse
does not have any significant
impact on output gap, it has been
observed that monetary policy is
more effective than fiscal policy
to target all the key variables in
the Indian context. The study also
finds that expansionary fiscal
policy was followed by
contractionary monetary policy
by the Reserve Bank of India.
Keywords: N.A.
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