Budget Deficits and Other Macroeconomic Variables in India

Applied Econometrics and International Development, Vol. 4, No. 1, 2004

Posted: 8 Apr 2005

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Abstract

This paper tries to study the interaction of budget deficit of India with other macroeconomic variables such as Nominal effective exchange rate, GDP, Consumer Price Index and money supply (M3) giving special emphasis on the budget deficit-exchange rate relationship using Cointegration approach and Variance Error Correction Models (VECM) for the period 1970-2002. The results reveal that the variables under study are cointegrated and there is a bi-directional causality between budget deficit and nominal effective exchange rates. However, we have not observed any significant relationship between budget deficit and GDP, Money supply & consumer price index. It is also observed that the GDP Granger-causes budget deficit where as budget deficit does not.

Keywords: Budget deficits, nominal effective exchange rates, vector autoregression

JEL Classification: E0, E4

Suggested Citation

Vuyyuri, Srivyal and Sakalya, Venkata Seshaiah, Budget Deficits and Other Macroeconomic Variables in India. Applied Econometrics and International Development, Vol. 4, No. 1, 2004, Available at SSRN: https://ssrn.com/abstract=598801

Venkata Seshaiah Sakalya

IBS Hyderabad ( email )

Donthanapally Shankarapalli Road
RAJAWALA ROAD
Hyderabad, RI Andhra Pradesh 501203
India

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