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An Econometric Study of Relative Effectiveness of Monetary and Fiscal Policy in India

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  • Sarabjit Kaur
  • Gian Kaur

Abstract

One school of economists the monetarists, believe that monetary impulse is the most important factor accounting for variations in output, employment and prices. They believe that changes in the money supply are the main sources of change in gross national product (GNP). Most of the monetarists also believe that pure fiscal policies, like increasing government expenditure, financed by taxes, cannot influence real output. Keynesians, on the contrary, argue that changes in real variables, such as investment and government expenditures, have a predominant impact on the GNP. Objective of this paper is to test empirically the relative effectiveness of the two policies in Indian context during pre-and post-period using VAR model. This study explores the monetary and fiscal policy interactions in the Indian economy.

Suggested Citation

  • Sarabjit Kaur & Gian Kaur, 2008. "An Econometric Study of Relative Effectiveness of Monetary and Fiscal Policy in India," Paradigm, , vol. 12(1), pages 98-103, January.
    • Handle: RePEc:sae:padigm:v:12:y:2008:i:1:p:98-103
    DOI: 10.1177/0971890720080112
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