Determinants of Inflation: Evidence from India using Autoregressive Distributed Lagged Approach Rasool Haroon*, Md. Tarique** *Research Scholar, Department of Economics, Aligarh Muslim University, Aligarh. Uttar Pradesh, India. haroonrasoolamu@gmail.com **Professor, Department of Economics, Aligarh Muslim University, Aligarh. Uttar Pradesh, India. mtarique69@gmail.com Online published on 12 January, 2018. Abstract Controlling inflation is one of the biggest challenge faced by macroeconomic policymakers in India. Present study is an attempt to identify the determinants of inflation and examine the nature of cointegration among the variables in India. Against this backdrop, the study utilized annual time series data from 1970 till 2015, and employed both the Autoregressive Distributed Lag Model (ARDL) and the Error Correction Method (ECM) to investigate the long-run and the short-run relationship among the variables. The ARDL bounds test results reveals the existence of longrun association among the variables when price is a dependent variable. Granger Causality based Error Correction Model also confirms both the longrun and shortrun causality running from all the explanatory variables towards price. Further, the coefficient of error correction term with negative sign remains statistically significant with approximately 65 percent speed of adjustment to restore the equilibrium in the long run, which shows the quick convergence. The outcomes of the impulse response functions (IRFs) test nearly support the findings of the present study. CUSUM and CUSUM-Q plots suggests the stability of coefficients estimated for both short run and long run model. Finally, some policy implications pertaining to the empirical findings are also discussed. Top Keywords Inflation, Interest rate, Money supply, Exchange rate, Real GDP, Cointegration, ARDL, ECM, India. Top |