Money, Output and Prices in India

Abstract

The dynamics of the monetary system is undergoing significant changes in India. The entire concept and fiow of money; narrow, broad or base, is being infl,uenced by measures related to financial inclusion and also behavioural changes with respect to the increase in usage of p/,a,stic money and other payment metlwds. Given this context, the paper aims to re-examine relationship between money supply, output and prices in the short and long-term. Different metrics for money, output and prices are used to understand the relationship between the variables. The relationship between money supply and food infl,ation is especially examined considering that food consumptionis less income elastic. The findings indicate that therelationship between variables is sensitive to choice of variable.