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Title: THE EFFECTIVENESS OF MONETARY POLICY IN INDIA: PRE AND POST REFORMS COMPARISONS
Authors: Ramandeep Kaur
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Ramandeep Kaur Research Scholar, Department of Economics, Panjab University, Chandigarh.
MLA 8 Kaur, Ramandeep. "THE EFFECTIVENESS OF MONETARY POLICY IN INDIA: PRE AND POST REFORMS COMPARISONS." Int. j. of Social Science and Economic Research, vol. 4, no. 1, Jan. 2019, pp. 617-631, ijsser.org/more2019.php?id=48. Accessed Jan. 2019. APA Kaur, R. (2019, January). THE EFFECTIVENESS OF MONETARY POLICY IN INDIA: PRE AND POST REFORMS COMPARISONS. Int. j. of Social Science and Economic Research, 4(1), 617-631. Retrieved from ijsser.org/more2019.php?id=48 Chicago Kaur, Ramandeep. "THE EFFECTIVENESS OF MONETARY POLICY IN INDIA: PRE AND POST REFORMS COMPARISONS." Int. j. of Social Science and Economic Research4, no. 1 (January 2019), 617-631. Accessed January, 2019. ijsser.org/more2019.php?id=48.
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Abstract: In this study, impact of Money Supply on output and inflation level has been analyzed for the time period 1971:M1 to 2017:M12. The Johansen Cointegration Technique and Vector Error Correction Mechanism has been applied for the full period (1971:M1 to 2017:M12), Pre-Reform Period (1971:M1 to 1991:M12 and Post-Reform Period (1992:M1 to 2017:M12). The index of Industrial Production (IIP), Wholesale Price Index (WPI) and Broad Money (M3) has been used as an indicator of output, inflation and monetary policy, respectively. It has been proved empirically that in India, Money Supply (M3) positively and significantly affects the output (IIP) and Inflation (WPI) level for the full period as well as for the post-reform period. On the other hand, during the pre-reform period, money supply was not targeting the price level, rather only satisfying its objective of output growth. This paper has also made an effort to conduct a comparative analysis of direct effect of M3 on WPI and IIP and indirect effects of M3 on IIP through the channel of WPI. It has been found that money supply can alter output level in a better way when it targets IIP directly as compared to an indirect route. Moreover, the impact of changes in money supply changes remains unbothered in both the direct as well as indirect route.

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