Money Supply, Investment and Economic Growth: A Causality Test for India
Keywords:
Money Supply, Capital Formation, Gross Domestic Product, Stationarity Test, Cointegration Test, Causality Test.Abstract
The paper aims to determi ne the empirica, relationship b etween Money Supply, Investmer. {Gross capital Forma tion) and Gross D omestic Outpi at cur rent and canst ant price ofIndii6ince the m ajor variable in the monetar y mechanism is the Monf Supply w hich ult imately elects t he Income and Expendit ure {Gross Domest ic Product). The attempt is made tctest the causality betweenthe macroecono mic v ariables like the Gross Domestic Product and Money Supply of Indi a on one ha nd an, on the otherhand the causality bet ween Gross Capit. Formation a nd Mo ney Supply ofIndia at Current P rice and Constant Pricebetween the time peri od of 1970 71 and 200-08. For this purp ose Augmented Dicke-,Fuller {ADF) T est, Phillips-Perro n {PP) Test, Kwiatko wskPhil/ips-Schmidt-S hin {KPSS) Test, Johansen Coi ntegratio, Test and Granger's Causality test s are undertake, The re sults show that increase in the Gross capit, Formation causes inc rease in
Money Supp ly at Current Price an d Constant Price.
