CONCLUSION

This chapter covered different aspects and parts of modelling, analyzing and predicting money supply. It encompasses modelling money supply in India by both official and independent economists.

the works on bi-directional and uni-directional causalities. Finally it pointed out certain issues around inapplicability of the pre-crisis period ap­proaches in the post-crisis period and made some recommendations along with further research directions.

REFERENCES

Ahluwalia, I. J. (1979). An analysis of price and output behavior in the Indian economy: 1951­1973. Journal of Development Economics, 6(3), 363-390. doi:10.1016/0304-3878(79)90022-1

Ahmed, M. (2003). Money-income and money price causality in selected SAARC countries: Some econometric exercises. The Indian Eco­nomic Journal, 50(1), 54-76.

Ahrensdorf, J., & Thasan, S. K. (1960). Variations in the money multiplier and their implications for central banking. IMF StaffPapers, 8(1), 126-149.

Ashra, S., Chattopadhyay, S., & Chaudhuri, K. (2004). Deficit, money and price: The Indian experience. Journal of Policy Modeling, 26(3), 289-299. doi:10.1016/j.jpolmod.2004.03.010

Bhattacharya, B. B. (1972). Some direct tests of the Keynesian and quantity theories for India. Indian Economic Review, 7(2), 17-31.

Bhide, S. (2001). The experience of India in using modelling for macroeconomic policy analysis. Retrieved November 29, 2012 from http://www. google.co.in/url?sa=t&rct=j&q=&esrc=s&sour ce=web&cd=2&ved=0CDIQFjAB&url=http%3 A%2F%2Fwww.unescap.org%2Fpdd%2Fproject s%2Fcasia%2Fuzb_ind.doc&ei=aEK4UN2BEsT nrAeOmoGYCg&usg=AFQjCNFMT4tajUbYl7 P7CuZ373VNPw02vg

Bomhoff, E.

Bose, S. (2011). Inflation: Sources, challenges and policy options. Economic and Political Weekly, 47(3), 27-30.

Brunner, K., & Meltzer, A. (1964). Some further investigations of demand and supply functions for money. The Journal of Finance, 19(2), 240-248. doi:10.1111/j.1540-6261.1964.tb00767.x

Burger, A. E., Kalish, L., & Babb, C. T. (1971). Money stock control and its implications for mon­etary policy. Federal Reserve Bank of St. Louis Review, 53(10), 6-22.

Cagan, P. (1965). Determinants and effects of changes in the stock of money, 1875-1960. Na­tional Bureau of Economic Research. Retrieved November 23, 2012 from http://www.nber.org/ chapters/c1639.pdf

Chakrabarty, T. K. (1987). Macro economic model of the Indian economy 1962-63 to 1983­84. Reserve Bank of India Occasional Papers, 8(3), 191-263.

Chitre, V. S. (1986). Quarterly prediction of reserve money multiplier and money stock in India. Artha Vijnana, 5(1), 1-123.

Chona, J. M. (1976). An analysis of money mul­tiplier and money supply in India. Economic and Political Weekly, 11(18), 668-676.

Das, R. (2010). Monetary history of India: Fore­casting perspective of central banks and econo­mists. Saarbrucken: Verlag Dr. Muller.

Das, S. (2003). Modelling money, price and output in India: A vector autoregressive and moving average (VARMA) approach. Applied Economics, 35(10), 12 19-1225. doi:10.1080/0003684032000090726

Dash, S., & Goyal, A. (2001). The money sup­ply process in India: Identification, analysis and estimation. The Indian Economic Journal, 48(1), 90-101.

Development Research Group. (2010). The divisia monetary indices as leading indicators of inflation. Reserve Bank of India. Retrieved November 30, 2012 from http://rbidocs.rbi.org.in/rdocs/Publica- tions/PDFs/DRRA020610F.pdf

Dun & Bradstreet.

Enders, W. (1995). Applied econometric time series. Hoboken, NJ: John Wiley and Sons.

Foster, J. (1992). The determination of sterling M3, 1963-88: An evolutionary macroeconomic approach. The Economic Journal, 102(412), 481-496. doi:10.2307/2234286

Friedman, B., & Woodford, M. (Eds.). (2011). Monetary economics volume 3A. San Diego, CA: North Holland.

Granger, C. W. G. (1969). Investigating causal relationships by economic models and cross spectral models. Econometrica, 37(3), 424-438. doi:10.2307/1912791

Gujarati, D. (2003). Basic econometrics. Boston: McGraw-Hill.

Gupta, G. S. (1972). Money supply determinants and their relative contribution to the monetary growth in India. Indian Economic Review, 7(2), 32-52.

Gupta, S. B. (1976a). Factors affecting money supply. Economic and Political Weekly, 11(14), 117-128.

Gupta, S. B. (1976b). Money supply analysis. Eco­nomic and Political Weekly, 12(30), 1834-1844.

Hafer, R. W., & Hein, S. E. (1984). Predicting the money multiplier forecasts from components and aggregate models. Journal of Monetary Economics, 14(3), 375-384. doi:10.1016/0304- 3932(84)90049-7

Jadhav, N. (2006). Monetary policy: Financial stability and central banking in India. Delhi, India: Macmillan.

Jadhav, N., & Singh, B. (1990). Fiscal monetary dynamic nexus in India: An econometric model. Economic and Political Weekly, 25(3), 159-165.

Jha, R., & Donde, K. (2002). The real effects of anticipated and unanticipated money: A test of the barro proposition in the Indian context. The Indian Economic Journal, 49(1), 21-30.

Jha, R., & Rath, D. P. (2003). On endogeneity of money supply in India. In R. Jha (Ed.), Indian economic reforms (pp. 51-71). Boston: Palgrave- Macmillan.

Johannes, J. M., & Rasche, R. H. (1979). Predict­ing the money multiplier.

Johannes, J. M., & Rasche, R. H. (1981a). Can the reserves approach to monetary control really work? Journal of Money, Credit and Banking, 13(3). Retrieved November 23, 2012 from http:// www.jstor.org/discover/10.2307/1991900?uid=3 738256&uid=2134&uid=2&uid=70&uid=4&s id=21101338928323

Johannes, J. M., & Rasche, R. H. (1981b). Up­dated forecasts of money multipliers. Shadow Open Market Committee Report, Simon Graduate School of Business Administration, University of Rochester. Retrieved November 23, 2012 from https://urresearch.rochester.edu/institutionalPub- licationPublicView.action?institutionalItemVersi onId=854

Johannes, J. M., & Rasche, R. H. (1981c). Fore­casting multipliers for the ‘new-new’ monetary aggregates. Shadow Open Market Committee Report, Simon Graduate School of Business Ad­ministration, University of Rochester. Retrieved November 23, 2012 from https://urresearch.roch- ester.edu/institutionalPublicationPublicView.acti on?institutionalItemVersionId=908

Johannes, J. M., & Rasche, R. H. (1982). Fore­casting multipliers in the 80’s: The more things change, the more they stay the same. Shadow Open Market Committee Report, Simon Graduate School of Business Administration, University of Rochester. Retrieved November 23, 2012 from https://urresearch.rochester.edu/institutionalPub- licationPublicView.action?institutionalItemVersi onId=939

Krishamurty, K. (2002). Macroeconomic models for India. Economic and Political Weekly, 37(42), 4295-4308.

Krishnamurty, K., & Pandit, V. (1984). Macro­economic modelling of the Indian economy. The Indian Economic Journal, 19(1), 1-14.

Krugman, P., & Obstfeld, M. (2003). Interna­tional economics: Theory and policy. Boston: Addison-Wesley.

Madhur, S., Nayak, P., & Roy, P. (1982). The budget, money and credit - A macroeconomic analysis. Economic and Political Weekly, 17(19), 773-782.

Marwah, K. (1972). An econometric model of India: Estimating prices, their role and sources of change. Indian Economic Review, 7(2), 53-91.

Mishra, P. K., Mishra, U. S., & Mishra, S. K. (2010). Money, price and output: A causality test for India. International Research Journal of Finance and Economics, 53, 26-36.

Mujumdar, N. A. (1976). Money supply analysis mechanistic and economic explanations. Eco­nomic and Political Weekly, 11(9), 371-373.

Nachane, D. M., & Nadkarni, R. M. (1985). Em­pirical testing of certain monetarist propositions via causality theory: The Indian case. The Indian Economic Journal, 33(1), 13-41.

Nachane, D. M., & Ray, D. (1989). The money multiplier: A re-examination of Indian evidence. The Indian Economic Journal, 37(1), 57-71.

Patterson, K. (2003). An introduction to applied econometrics: A time series approach. Hampshire, UK: Palgrave-Macmillan.

Pierce, D. A. (1977). Relationships-and the lack thereof between economic time series, with special reference to money and interest rates. Journal of the American Statistical Association, 72(357∖ 11-22.

Pindyck, R. S., & Rubinfeld, D. L. (1998). Econo­metric models and economic forecasts. Boston: Irwin McGraw-Hill.

Rangarajan, C., & Arif, R. R. (1990). Money, output and prices: A macroeconomic model. Economic and Political Weekly, 25(16), 837-852.

Rangarajan, C., & Mohanty, M. S. (1997). Fiscal deficit, external balance and monetary growth - A study of Indian economy. In C. Rangarajan (Ed.), Select essays on Indian economy (pp. 65-128). New Delhi, India: Academic Foundation.

Rangarajan, C., & Singh, A. (1984). Reserve money: Concepts and policy implications for India. Reserve Bank of India Occasional Papers, 5(1), 1-26.

Rao, D. C., Venkatchalam, T. R., & Vasudevan, A. (1981). A short term model to forecast monetary aggregates - Interim results. RBI Occasional Papers, 2(1), 113-140.

Rath, D. P. (1999). Does money supply process in India follow a mixed portfolio loan demand model.

Ray, D., & Namboodiri, K. S. (1988). Granger’s causality - An Indian experience. Journal of Quantitative Economics, 4(2), 279-291.

Sarma, Y. S. R. (1982). Government deficit, money supply and inflation in India. Reserve Bank of India Occasional Papers, 2(1), 56-67.

Sharma, A., Kumar, A., & Hatekar, N. (2012). Causality between prices, output and money in India: An empirical investigation in the frequency domain. Retrieved November 23, 2012 from http:// www.igidr.ac.in/money/mfc-12/Ashutosh%20 sharma_Abodh.pdf

Sharma, R. L. (1985). Causality between money and price level in India. Indian Economic Review, 19(2), 213-221.

Shetty, S. L., Avadhani, V. A., & Menon, K. (1976). Money supply. Economic and Political Weekly, 11(15), 571-574.

Sims, C. (1972). The role of approximate prior restrictions in distributed lag estimation. Journal of the American Statistical Association, 67(337), 169-175. doi:10.1080/01621459.1972.10481221

Singh, A., Shetty, S. L., & Venkatchalam, T. R. (1982). Monetary policy in India: Issues and evidence. Supplement to RBI Occasional Papers, 3(1), 1- 133.

Singh, B. (1989). Money supply-prices: Causality revisited. Economic and Political Weekly, 24(47~), 2613-2615.

Soumya, A., & Murty, K. N. (2005). Macroeco­nomic changes in selected monetary and fiscal variables. In B. B. Bhattacharya, & A. Mitra (Eds.), Studies in macroeconomics and welfare (pp. 89-115). New Delhi, India: Academic Foundation.

Swamy, G. (1978). An analysis of sources of change in high-powered money in India. In RBI Economic Department (Ed.), Recent develop­ments in monetary theory and policy (pp. 161­185). Bombay, India: Reserve Bank of India.

Verma, S., & Kumar, S. (1994). Causality between money supply and prices in India. The Indian Economic Journal, 42(1), 57-62.

KEY TERMS AND DEFINITIONS

Co-Integration: If an exogenous variable is regressed on an endogenous variable both hav­ing the same order of integration, and the error terms turn up to be perfectly stationary, these two variables are called to be cointegrated.

Error Correction: When two variables are cointegrated, there may be short term deviation from their long run equilibrium values. Then the short term value of one variable changes depending on the short term value of the other variable as well as the error term, and gradually move towards its own long equilibrium value. This process is known as error correction.

Granger Causality: When an exogenous vari­able depends in statistically significant manner on an endogenous variable and the lagged values of both, the latter variable is said to Granger-cause the former variable.

Inflation: Rise in prices measured by whole­sale prices (WPI).

Money: There are four definitions of money out of which is used mostly for econometric exercises is the broad money or M₃ = currency with public + demand deposits with the banking system + other deposits with RBI + time deposits with the banking system.

Money Supply: Synonymous with ‘money’.

Output: Production in the country measured as Gross Domestic Product (GDP). Sometimes it indicates industrial output measured by IIP also.

Price: Here wholesale price index (WPI).

Stationarity: The property of a time series variable to have constant mean and variance at different points of time. Violation of this prop­erty makes the variable non-stationary. In order to make it stationary differences are taken, e.g. difference between the values of current period and previous period or second previous period. Accordingly the variable is called to be integrated of first order or second order.

Vector Auto Regression (VAR): Regression of one endogenous variable upon another and their lagged values - both having the same order of integration and the equations are without any identification problem, i.e. there are unique equi­librium values of each variable - is called VAR.

ENDNOTES

¹ Standard international economics literature like Krugman and Obstfeld (2003) described four following reasons behind Central Bank intervention in exchange rate movement: (a) Current Practice: The present monetary system of the world is a mix of fixed and flexible exchange rate systems. A country following an unmixed fixed/flexible ex­change rate system is a rare instance. (b) Regional Agreements: There are pacts/agree- ments among different countries, whereby they try to maintain a mutually agreed level of exchange rates amongst themselves, but allow exchange rates to fluctuate against out­sider countries. (c) Countries in Transition: Nearly half of the countries of the world are going through economic transition towards a more capitalist system from a less capital­ist system. (5) Experts Opinion: There is a debate among economists and policy makers regarding which of the fixed and the flex­ible exchange rate systems is better. So the governments cannot decide which system is more beneficial.

² Reserve currency system is a fixed exchange rate system. In this system, the Central Bank of each country singles out one foreign currency as reserve currency and holds the reserve currency in its international reserves. The Central Banks in this case are ready to sell/buy the reserve currency in exchange for the domestic currency in the foreign currency market, whenever required, with a view to maintaining the fixed exchange rate between reserve and home currencies. US dollar has been the reserve currency between 1939 and 1973 and by and large all countries of the world peg their currencies to US dollar. The reserve currency system gives an advantage to that country (henceforth c alled the reserve currency’s country RCC) whose currency is considered reserve currency. The RCC need not intervene in the foreign currency, because other countries maintain the exchange rate between RCC and their countries. Secondly the reserve currency system puts the RCC in a privileged position because it can control other countries’ monetary policies through it’s own monetary policy by means of influ­encing the exchange rate between the reserve currency and other countries’ currencies. If USA increases it’s own money supply then ceteris paribus value of Indian rupee appreci­ates. This may cause a balance of payment problem for India, because imports become cheaper and exports become costlier. So India has to increase her money supply in order to devalue Indian rupee vis-a-vis US dollar.

This work was previously published in Emerging Methods in Predictive Analytics, edited by William H. Hsu, pages 334-348, copyright 2014 by Information Science Reference (an imprint of IGI Global).