Money, Output and Price Behavior in India Under Reforms: Some Empirical Evidence

Among the important macroeconomic variables which explain inter-temporal behavior of real GNP production in an economy, money is undoubtedly one. According to monetarists, money is the fundamental motivating force to shape the time behavior of real GNP production and its related variables. But money's explanatory power is not confirmed beyond doubt. Economists have attempted to highlight the role of money in causing GNP growth. They have made use of refined methodology, historical data and econometric tools to confirm the real effects of money supply on an economy. In spite of the refined methodology used to derive the inferences, the studies present divergent results in respect of the power of money to cause real GNP production. Since the precise nature of relationship between money supply and GNP production remains an area of unsettled issue, it is therefore difficult to conclude that real economic activities measured in terms of production, employment and investment always respond to changes in money supply.