This paper studies the role of the real money gap - the deviation of real money balance from its long-run equilibrium level - for predicting inflation in India. Using quarterly data on manufacturing inflation from 1982 to 2007, we find that the real money gap is a significant predictor of...

Monetarists blamed fluctuations in inflation on excessively volatile growth in monetary aggregates. The data supported this hypothesis until 1982. Since 1983 monetary aggregates have been essentially uncorrelated with subsequent inflation in the US. Kochin (1973) argued that well designed...