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Nexus between Fiscal Deficits, Money Supply and Price Level in India: A VAR Approach – isec

Nexus between Fiscal Deficits, Money Supply and Price Level in India: A VAR Approach

Abstract

This paper examines the dynamic relationship between fiscal deficits, money supply, and price level in India during the period 1960-61 to 1999-2000. Using vector autoregression (VAR) econometric methodology, which allows variables to be treated as potentially endogenous, the study finds that fiscal deficits and money supply are both influenced by each other. Further, it reveals that the price level does not influence either the fiscal deficit or money supply but rather is being influenced by both the variables.

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