Indian Journal of Industrial Relations: Economics & Social Dev.

Nitin Arora ¹, Harinder Kaur Gill ¹

Affiliations
1 Department of Economics, Panjab University, Chandigarh, IN

Abstract

The monetary authority must be independent enough in a developing economy so as the balance between growth and inflation rate can be maintained. The portfolio of the Governor of Reserve Bank of India (RBI) is therefore, a challenging one that requires an eagle’s eye on various economic activities to cater to the development with justice; a primary need of Indian economy. Raghuram G. Rajan had been a Chief Economist of the International Monetary Fund (2003-2006) and had joined as 23^rd Governor of the RBI on 4^th September, 2013.

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Harinder Kaur Gill ¹

Affiliations
1 Senior Research Fellow (NET/UGC), Department of Economics, Panjab University, Chandigarh 160014, IN

Abstract

The present study examines the impact of expansionary monetary and fiscal policies on the output gap, price level and real effective exchange rate in India during 2001:M4 to 2018:M7 using sign restricted Bayesian Vector Autoregressive modelling. Innovation accounting analysis indicates the fiscal dominance in India as fiscal policy intervention causes higher variations than monetary policy in output gap, price level and exchange rate. Since fiscal policy impulse does not have any significant impact on output gap, it has been observed that monetary policy is more effective than fiscal policy to target all the key variables in the Indian context. The study also finds that expansionary fiscal policy was followed by contractionary monetary policy by the Reserve Bank of India.

Keywords

No Keywords.

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