A Study on Money Supply, Income and Price- Empirical Evidence from India

This paper examines the relationship between Money Supply, Income and Price for India during the period 1951-2012. The Pair-wise Granger Causality test and co-integration techniques are used for analysing the relationship between Money Supply, Income and Price in this study. The Johansen co-integration test indicates Money Supply, Income and Price are co-integrated, and that a long-run equilibrium exists between them. The Pair-wise Granger Causality test reveals that there is uni-directional causality running from Money Supply to Income. It means Money Supply leads to Income but Income does not lead to Money Supply. There is no cause and effect relationship between Price and Income. The Pair-wise Granger Causality test also reveals that there is bi-directional causality between Money Supply and Price. It means Money Supply leads to Price and Price leads to Money Supply.