Department Of Economic Studies

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Subject: search.filters.subject.Error Correction Model

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    Food inflation in india: Trends and determinations
    (Central University of Punjab, 2014) Ahmed, Mumtaz; Singla, Naresh
    Food Inflation has been persistently high in India during the past few years. Controlling food prices is one of the major tasks for the macroeconomic policy makers. The recent oil price hike and some natural calamities have increased food prices around the world. This study focuses on the identification of main determinants of food price inflation in India. Using the monthly data from January 2006 to December 2013, Johansen's cointegration technique has been applied to find out the long run relationships among food price inflation and its determinants like money supply, interest rate, exchange rate, crude oil, world food prices and rainfall. Empirical findings prove the long run relationships among food price inflation and its determinants. In the long run model, all determinants affect food inflation except the world food prices. Error correction model has also been used in order to comprehend the short run causality of food inflation determinants. The error correction term of error correction model turns out to be significant which further confirm the long run causality as well as the speed of convergence toward long run equilibrium, which has occurred due the short disturbance. In the short run only world food prices and crude oil coefficients and statistically significant at five percent level. Finally, the study suggests some policy implications such as reduced dependency of monsoon by improving the irrigation system, investment in agricultural inputs and shift of policy towards biofuel etc.
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    Empirical Evidence on Money-Price Relationship in India: Cointegration and Causality Approach
    (Serial Publications Pvt.Ltd., 2017) Mishra, P. K.; Verma, J.K.
    In recent years, the study of the causal relationship between money supply and price level has attracted the attention of economists, researchers, and policy makers. This study shall be significant in deciding whether price stability is the primary objective of monetary policy in India. Using the sample data on consumer price index and broad money supply for the period 1950-51 to 2015-16, this study provides the evidence of long-run equilibrium relationship between money and general price level. It further suggests the existence of unidirectional causality running between money supply to general price level in the long-run. And, also confirms the presence of bidirectional causal relationship between money and price in the short-run. But it is very interesting. The causality from money supply to price is positive whereas in the reverse direction it is negative. Thus, any increase in money supply would raise the rate of inflation and hence, price stability should be considered as the primary objective of monetary policy in India. On the contrary, rising inflation can be controlled through curtailed money supply implementation of appropriate monetary policy in the country.