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Determinants of inflation in India

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  • Mohanty, Deepak
  • John, Joice

Abstract

The paper attempts to identify the determinants of inflation in India in a multivariate econometric framework using quarterly data from Q1: 1996–1997 to Q3: 2013–2014. The identified determinants of domestic inflation such as crude oil prices, output gap, fiscal policy and monetary policy, and their relation with inflation is studied in a structural vector auto regression (SVAR) model. Further, the temporal changes in inflation dynamics are analyzed using a time varying parameter SVAR model with stochastic volatility. It was found that inflation dynamics in India have changed over time with various determinants showing significant time variation in the recent years, particularly after the global financial crisis.

Suggested Citation

  • Mohanty, Deepak & John, Joice, 2015. "Determinants of inflation in India," Journal of Asian Economics, Elsevier, vol. 36(C), pages 86-96.
    • Handle: RePEc:eee:asieco:v:36:y:2015:i:c:p:86-96
    DOI: 10.1016/j.asieco.2014.08.002
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    2. Hoang, Thi Hong Van & Lahiani, Amine & Heller, David, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Economic Modelling, Elsevier, vol. 54(C), pages 54-66.
    3. Saini, Shweta & Gulati, Ashok & von Braun, Joachim & Kornher, Lukas, 2020. "Indian Farm Wages: Trends, growth drivers and linkages with food prices," Discussion Papers 307268, University of Bonn, Center for Development Research (ZEF).
    4. Nasir, Muhammad Ali & Huynh, Toan Luu Duc, 2024. "Nexus between inflation and inflation expectations at the zero lower bound: A tiger by the tail," Economic Modelling, Elsevier, vol. 131(C).
    5. Martin Feldkircher & Gabriele Tondl, 2020. "Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(3), pages 225-247, August.
    6. Maitra, Biswajit & Hossain, Tafajul, 2024. "Exploring price level trajectory in India: Does it validate the fiscal theory of price level?," Journal of Asian Economics, Elsevier, vol. 92(C).
    7. Thi Hong Van Hoang & Amine Lahiani & David Heller, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Post-Print hal-02012307, HAL.
    8. Abdhut Deheri, 2021. "The Effects of Monetary Policy on Output and Inflation in India: A Time-varying Approach," Economics Bulletin, AccessEcon, vol. 41(3), pages 1603-1614.
    9. Kia, Amir & Jafari, Mahboubeh, 2020. "Forward-looking agents and inflation in an oil-producing country: Evidence from Iran," Journal of Asian Economics, Elsevier, vol. 69(C).
    10. Sriyana, Jaka, 2018. "Inflationary effects of fiscal and monetary policies in Indonesia," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 14(3), June.
    11. Girish Bahal & Anand Shrivastava, 2022. "Fiscal transfers and inflation: evidence from India," Empirical Economics, Springer, vol. 63(4), pages 1837-1858, October.
    12. Wong, Zoey Jia Rou & Tang, Tuck Cheong, 2020. "Credit Card Usage and Inflation: A Case Study of a Small Open Economy," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(1), pages 19-32.
    13. Behera, Harendra Kumar & Patra, Michael Debabrata, 2022. "Measuring trend inflation in India," Journal of Asian Economics, Elsevier, vol. 80(C).
    14. Ashima Goyal & Abhishek Kumar, 2022. "What drives Indian inflation? Demand or supply," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-013, Indira Gandhi Institute of Development Research, Mumbai, India.
    15. Deluna, Roperto S. & Loanzon, Jeanette Isabelle V. & Tatlonghari, Virgilio M., 2021. "A nonlinear ARDL model of inflation dynamics in the Philippine economy," Journal of Asian Economics, Elsevier, vol. 76(C).
    16. Nasir, Muhammad Ali & Huynh, Toan Luu Duc & Yarovaya, Larisa, 2020. "Inflation targeting & implications of oil shocks for inflation expectations in oil-importing and exporting economies: Evidence from three Nordic Kingdoms," International Review of Financial Analysis, Elsevier, vol. 72(C).
    17. Nasir, Muhammad Ali & Duc Huynh, Toan Luu & Vo, Xuan Vinh, 2020. "Exchange rate pass-through & management of inflation expectations in a small open inflation targeting economy," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 178-188.
    18. Sajad Ahmad Bhat & Bandi Kamaiah, 2021. "Fiscal policy and macroeconomic effects: structural macroeconometric model and simulation analysis," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 23(1), pages 81-105, June.
    19. Suwareh Darbo & Amandine Nakumuryango, 2018. "Working Paper 305 - Inflation Dynamics In Post-Secession Sudan," Working Paper Series 2432, African Development Bank.
    20. Roy, Rudra Prosad & Sinha Roy, Saikat, 2022. "Commodity futures prices pass-through and monetary policy in India: Does asymmetry matter?," The Journal of Economic Asymmetries, Elsevier, vol. 25(C).
    21. Gurleen Kaur, 2021. "Inflation and Fiscal Deficit in India: An ARDL Approach," Global Business Review, International Management Institute, vol. 22(6), pages 1553-1573, December.
    22. Kumar, Ankit & Dash, Pradyumna, 2020. "Changing transmission of monetary policy on disaggregate inflation in India," Economic Modelling, Elsevier, vol. 92(C), pages 109-125.
    23. Mohamed Khaled Al-Jafari* & Hatem Hatef Abdulkadhim Altaee, 2019. "Determinants of Inflation Sources in Iraq: An Application of Autoregressive Distributed Lag (ARDL) Model," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(2), pages 381-388, 02-2019.
    24. Bhattacharya, Rudrani, 2023. "Does Monetary Policy in India Anchor Inflation Expectation?," Working Papers 23/395, National Institute of Public Finance and Policy.
    25. Jaka Sriyana & Jiyao Joanna Ge, 2019. "Asymmetric responses of fiscal policy to the inflation rate in Indonesia," Economics Bulletin, AccessEcon, vol. 39(3), pages 1701-1713.

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    More about this item

    Keywords

    Inflation; India; Time-varying parameter model; Stochastic volatility;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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