A VAR model for analysing the interrelation between India's monetary and fiscal policies

Crawford School of Public Policy | Arndt-Corden Department of Economics

Event details

PhD Seminar (Econ)

Date & time

Friday 26 July 2013


Coombs Seminar Room A, Coombs Building, Fellows Road, ANU


Duc Truong Nguyen


Robert Sparrow

In the long run, production is only affected by real factors such as capital, labour, and technology. However, policymakers mostly adjust nominal instruments such as interest and tax rates to achieve different economic targets which belong to the real side. Considering the relation between normal and real sides, this paper modifies a financial model by Sharma and Jha (2012) then applies Vector Autoregression (VAR) to study the interrelation between fiscal and monetary policies and how these policies affect economic growth in the context of India. It is found that the Indian economy is resilient to exogenous shock. Besides two reasons suggested in Sharma and Jha (2012) including the low integration level of the Indian banking system to the world financial market and the domination of domestic consumption and investment, this paper adds that right policies have been carried out in the face of the global financial crisis. Among monetary, exchange rate, and fiscal policies, monetary policy is always effective in dealing with exogenous shock.

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