The Determinants of Inflation in India: The Bounds Test Analysis


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Authors

  • MD Qaiser Alam
  • MD Shabbir Alam Dhofar University, Salalah, Oman

Abstract

India is facing a fast rise in the general price level for the last couple of years. This paper seeks to empirically examine the sources of inflation in India both in the long-run and in the short-run by using the cointegration method developed by Pesaran et al. (2000). The empirical findings suggests that in the long-run money supply, depreciation of the rupee and supply bottlenecks puts a pressure on the domestic price level by causing inflation to rise in the country. The analysis reveals that in the long-run domestic factors as monetary growth and supply bottlenecks dominates the external factors for a rise in the domestic prices in the economy. The short-run analysis also reveals that domestic factor money supply and supply bottlenecks dominate the external factor as a measure cause for a persistent rise in the price level in the country. The supply bottlenecks are though a significant factor in the short-run, but its importance in the long-run is relatively small. Keywords: Inflation, Money Supply, Exchange rate, World Price, GDP gap, Bounds test, ECMJEL Classifications: E31, E51, D51, F43

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Author Biography

MD Shabbir Alam, Dhofar University, Salalah, Oman

Assistant Professor of Economics at Department of Accounting and Finance, College of Commerce and Business Administration, Dhofar University

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Published

2016-04-19

How to Cite

Alam, M. Q., & Alam, M. S. (2016). The Determinants of Inflation in India: The Bounds Test Analysis. International Journal of Economics and Financial Issues, 6(2), 544–550. Retrieved from https://econjournals.com/index.php/ijefi/article/view/2019

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