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• W3123510564 abstract "This paper examines the relationship between inflation, inflation volatility and economic growth for India, using both Consumer Price Index (CPI) for industrial workers and Wholesale Price Index (WPI). The study using annual data over the period 1980-2014, reveals that the level of inflation (both CPI and WPI) has negative but insignificant effect on economic growth. To analyze the impact of inflation uncertainty on growth, the study calculates inflation volatility as the fivepoint moving average of coefficient of variation of inflation. The results show that the coefficient of inflation volatility is negative and significant. This signifies that high inflation and inflation uncertainty adversely affect economic growth. Granger causality test is also used to measure the direction of causality between inflation and growth. When CPI is used as a measure of inflation, at an optimal lag length 3, there is no causality between inflation and growth. As more lags are added, the results indicate unidirectional causality from GDP growth to inflation. With WPI, the results show that causality runs from GDP growth to inflation at lag 1, which is found to be optimal. However, WPI inflation and GDP growth are found to be independent of each other as more lags are added to the model during the period of study. Hence, reducing inflation and maintaining price stability is imperative for economic growth.(ProQuest: ... denotes formulae omitted.)IntroductionInflation and growth relationship has been of fundamental interest in macroeconomics. Lower inflation and higher economic growth are the primary objectives of macroeconomic policy. However, the relationship between inflation rate and growth remains inconclusive in theory and empirical findings. Most studies analyze the relationship between inflation level and economic growth. A very small number of these studies examine the link between inflation volatility and growth. The current paper investigates the relationship between inflation, inflation volatility and economic growth for India using both Consumer Price Index (CPI) for industrial workers and Wholesale Price Index (WPI) from 1980 to 2014.Till the 1960s the relationship between inflation and growth was considered to be positive as per the theory of Phillips curve. It meant policymakers could choose different combinations of inflation and unemployment rate. For example they could lower unemployment rate as long a s they wer e fine with high inflation. So, unemployment could be reduced by expansionary monetary and fiscal policies. These policies would tend to increase output and prices. Or they could lower the rate of inflation by increasing unemployment. So, inflation could be reduced by contractionary monetary and fiscal policies. This would tend to reduce output and prices. This reflects Keynesian economics, in which demand side policies can reduce unemployment in the long run with some inflation. Phillips exists because wages and prices adjust slowly to changes in aggregate demand and unemployment. There are various theories (Dornbusch et al., 2009) that explain why wages or prices are sticky or slow to adjust to changes in aggregate demand-imperfect information, relationships and insideroutsider models. The Phillips curve relationship was severely criticized by Friedman and Phelps in the 1960s. According to them, Phillips curve exists only in the short run and not in the long run.They were of the view that employer's expectations about the price level are always correct, but workers' expectations about the price level are temporarily wrong. As firms expand their business, they raise prices more than the wages, thus reducing the real wages. So employers have an incentive to hire more workers and increase output. Workers wrongly believe that their real wages have risen and hence they work more. This results in a shortterm positive relationship between inflation and output till workers realize that their real wages have not changed. …" @default.
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• W3123510564 date "2015-07-01" @default.
• W3123510564 modified "2023-09-27" @default.
• W3123510564 title "Inflation, Inflation Volatility and Economic Growth: The Case of India" @default.
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