Inflation management in India.

Karia, Niki (2007) Inflation management in India. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

Inflation is often described by economists as the general and persistent increase in prices across an economy. The rise in prices affects the wages, real income, production, unemployment and so on. Inflation adversely affects the growth rate in an economy and reduces savings and investments. Due to the deleterious effects it has on the economy, inflation has taken its place as a central economic issue. The point to be stressed on is that inflation is here and it is to stay, unless some effective measures can be used to control its very emergence. For more than two decades, controlling inflation has been the main goal of central banks around the world, and it has now become an issue of central and immediate importance in India. The key instrument used by Central banks in most countries is the short-term interest rate. When a country experiences persistent high inflation, interest rates are increased to bring inflation into control. However, the empirical evidence relating to the effect of interest rates on inflation is mixed and there is no evidence in the literature for India. The question is: How useful is this instrument in controlling inflation and can it be used to control inflation in India?

This dissertation adopts a recently published framework for analyzing causal relationships to examine the effect of the rate of interest on inflation in India. The results indicate that the rate of interest does have a negative effect on inflation, but this conclusion is qualified in two ways. First, the rate of interest has an effect on inflation through a causal chain involving the stock of money and, although the net effect is as theory suggests, the individual links in the chain are not. Second, the causal connection is of a sort that only partly enables the rate of interest to be used to control inflation.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 06 Mar 2008
Last Modified: 13 May 2016 10:43
URI: http://eprints.nottingham.ac.uk/id/eprint/21435

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