Indian Journal of Industrial Relations: Economics & Social Dev.

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Demonetization Impeded Indian Economic Growth? Test of Hawtrey’s Theory of Business Cycles


Affiliations
1 Department of Economics, Panjab University, Sector-14, Chandigarh 160014, India
     

   Subscribe/Renew Journal


Many national and international agencies blame demonetization as a major factor behind the deceleration in the growth rate of Indian economy in recent quarters. Such linkages of economic growth with monetary shocks have been well explained by Hawtrey’s monetary theory of business cycles. The present paper attempts to test Hawtrey’s theory in the context of demonetization in India. The results indicate that the Indian economy did experience fourteen growth-rate cycles over the period 1970 to 2017. Given that M3 takes an average 7 months lead in explaining the low growth (i.e., downswing) phase, the demonetization (i.e., fall in money supply) can be admitted as a lead because of falling growth rate of Indian economy.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Banerji, A.&Dua, P. (2011), “Predicting Recessions and Slowdowns: a Robust Approach”, Working paper No 202, Centre for Development Economics, Department of Economics, Delhi School of Economics, New Delhi.

  • Bordoloi, S. (2007), “Forecasting the Turning Points of the Business Cycles with Leading Indicators in India: A Comparison between the Probit and Artificial Neural Network Model”, presented in Singapore Economic Review conference,Electronically retrieved from <> on 14th September, 2017.

  • Bry, G.&Boschan, C. (1971): “Programmed Selection of Cyclical Turning Points”, in Gerhard Bry and Charlotte Boschan, Cyclical Analysis of Time Series: Selected Procedures and Computer Programs,New York, NBER.

  • Burns, A. F.& Mitchell, W. C. (1946), Measuring Business Cycles, New York, NBER.

  • Chitre, V. (2001),”Indicators of Business Recessions and Revivals in India: 1951-1982", Indian Economic Review, New series,36 (1):79-105.

  • Cooley, T. F.& Hansen, G. D. (1998), “The Role of Monetary Shocks in Equilibrium Business Cycle Theory: Three Examples”, European Economic Review, 42(3-5):605-17.

  • Davis, R. G. (1968), “The Role of the Money Supply in Business Cycles”,Economic Policy Review, Federal Reserve Bank of New York, 50(4):63-73.

  • Dua, P.& Banerji, A. (2001), “An Indicator Approach to Business and GrowthRate Cycles: The Case of India”, Indian Economic Review, New Series, 36(1): 55-78.

  • Dua, P.& Banerji, A. (2007), “Predicting Indian Business Cycles Leading Indices for External and Domestic Sector”, Margin: The Journal of Applied Economic Research, 1(3): 249-65.

  • Dua, P. &Banerji, A. (2012), “Business and Growth Rate Cycles In India”,Working paper No. 210, Centre for Development Economics, Delhi School of Economics, New Delhi.

  • Friedman, M.& Schwartz, A. J. (1975): “Money and Business Cycles”,in the editorial book, The State of Monetary Economics,New York, NBER.

  • Gabisch, G.& Lorenz, H. W. (1989),Business Bycle Theory: A Survey of Methods and Concepts, Springer Science and Business Media, New York.

  • Ghate, C., Pandey, R.& Patnaik, I. (2013), “Has India Emerged? Business Cycle Stylized Facts from a Transitioning Economy”, Structural Change and Economic Dynamics, 24(1):157-72.

  • Hawtrey, R. G. (1927), “The Monetary Theory of the TradeCycle and Its Statistical Test”,The Quarterly Journal of Economics, 41(3): 471-86.

  • Hayek, F. A. (1929),Monetary Theory and the Trade Cycle;Translated from the German by N. Kaldor and HM Croome in 1933. New York: Harcourt, Brace & Co., Inc.

  • Hodrick R.J. & E.C. Prescott (1997)”Post-war U.S. Business Cycles: An Empirical Investigation”,Journal of Money, Credit and Banking, 28(4):1-16.

  • Ireland, P. N. (2001), “Money’s Role in the Monetary Business Cycle”, Working Paper No. 8115, National Bureau of Economic Research, New York.

  • Jayaram, S., Patnaik, I.& Shah, A. (2009), “Examining the Decoupling Hypothesis for India”, Economic and Political Weekly, 44(44): 109-16.

  • Juglar, C. (1862), Des crises commerciales et de leur retour périodiqueen France enAngleterre et aux États-Unis, English Name: Trade Crises and Their Periodic Return to France in England and the United States,Paris: Guillaumin.

  • Kaldor, N. (1940), “A Model of the Trade Cycle”,The Economic Journal, 50 (1):78-92.

  • Keynes, J. M. (1936), General Theory of Employment, Interest, and Money, Basingstoke: Palgrave Macmillan.

  • Klein, P. A. (1998), “Swedish Business Cycles: Assessing the Recent Record”, Working Paper No 21, Federation of Swedish Industries, Department of Economic and Fiscal Policy, Stockholm.

  • Koopmans, T. C. (1947),”Measurement without Theory”, The Review of Economic Statistics, 29(3):161-72.

  • Metzler, L. A. (1941), “The Nature and Stability of Inventory Cycles”,The Review of Economics and Statistics, 23(3):113-29.

  • Mohanty, J., Singh, B.& Jain, R. (2003), “Business Cycles and Leading Indicators of Industrial Activity in India”,Reserve Bank of India, Occasional Papers, 22(2-3).

  • Papademos, L. (2003),”Economic Cycles and Monetary Policy”, Speech at International Symposium-Monetary Policy, Economic Cycle and Financial Dynamics,7thMarch, 2003, Paris.

  • Patnaik, I&Sharma, R. (2002), “Business Cycles in the Indian Economy”,Margin, 35(1):71-80.

  • Reserve bank of India (2007),Report on Composite Index of Leading Indicators for Indian Economy, Mumbai.

  • Samuelson, P. A. (1939), “Interactions between the Multiplier Analysis and the Principle of Acceleration”,The Review of Economics and Statistics, 21(2): 75-78.

  • Schumpeter, J. A. (1939),Business Cycles: aTheoretical, Historical, and Statistical Analysis of the Capitalist Process,New York: McGraw-Hill.

  • Shah, A. (2008), “New Issues in Macroeconomic Policy”, Working Paper No 51, National Institute of Public Finance and Policy, New Delhi.

  • Shah, A.& Patnaik, I. (2010), “Stabilising the Indian Business Cycle,” in S. Kochhar (ed) India on the Growth Turnpike: Essays in Honour of Vijay L. Kelkar, Academic Foundation.

  • Zarnowitz, V. (1991), “What Is a Business Cycle?”, NBER Working Paper Series No. 3863, New York: NBER.


Abstract Views: 369

PDF Views: 1




  • Demonetization Impeded Indian Economic Growth? Test of Hawtrey’s Theory of Business Cycles

Abstract Views: 369  |  PDF Views: 1

Authors

Nitin Arora
Department of Economics, Panjab University, Sector-14, Chandigarh 160014, India
Sumanpreet Kaur
Department of Economics, Panjab University, Sector-14, Chandigarh 160014, India
Ramandeep Kaur
Department of Economics, Panjab University, Sector-14, Chandigarh 160014, India

Abstract


Many national and international agencies blame demonetization as a major factor behind the deceleration in the growth rate of Indian economy in recent quarters. Such linkages of economic growth with monetary shocks have been well explained by Hawtrey’s monetary theory of business cycles. The present paper attempts to test Hawtrey’s theory in the context of demonetization in India. The results indicate that the Indian economy did experience fourteen growth-rate cycles over the period 1970 to 2017. Given that M3 takes an average 7 months lead in explaining the low growth (i.e., downswing) phase, the demonetization (i.e., fall in money supply) can be admitted as a lead because of falling growth rate of Indian economy.

References