Is Balance of Payments a monetary phenomenon: doctrinal aspects and empirical evidence from India
The main aim of the study is to test the relevance and effectiveness of Harry Johnson’s monetary approach using the Balance of Payments Account and Money supply in India. The study uses annual data from 1991 to 2024, especially since the execution of LERMS in 1991. This study uses the Augmented Dick...
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| Language: | English |
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General Association of Economists from Romania
2025-06-01
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| Series: | Theoretical and Applied Economics |
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http://store.ectap.ro/articole/1845.pdf
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| author | N. KUBENDRAN Rose Govindha RAJ Balaram ROULA |
| author_facet | N. KUBENDRAN Rose Govindha RAJ Balaram ROULA |
| author_sort | N. KUBENDRAN |
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| description | The main aim of the study is to test the relevance and effectiveness of Harry Johnson’s monetary approach using the Balance of Payments Account and Money supply in India. The study uses annual data from 1991 to 2024, especially since the execution of LERMS in 1991. This study uses the Augmented Dickey-Fuller and Philips-Perron test for stationary conditions. In order to detect the automatic equilibrium process under a flexible exchange rate system and to analyse the short-run and long-run relationship, the study employed the Autoregressive Distributed Lag-Error Correction Model (ARDL-ECM) for analysis. The test results from the ARDL model depict that there is a long-run association between BOP and independent variables like Exchange rate, money supply and capital outflows. ARDL-ECM model did not find any causality in the short run. Also, the study did not find any automatic restoration process in India’s Balance of Payments since LERMS. So this study found less relevance of the monetary approach in solving disequilibrium in India’s Balance of Payments. Also, the study observed that the role of monetary policy is not effective in the context of India’s BOP. In the present scenario, this may not be an issue for an emerging economy like India. But in the long run, to achieve external equilibrium based on the Mundell-Flemings assignment rule, the study strongly recommended Friedman’s monetary rule for the effectiveness of the monetary policy. |
| format | Article |
| id | doaj-art-d8a72d88c92145b2b973cc3b984a8c64 |
| institution | Matheson Library |
| issn | 1841-8678 1844-0029 |
| language | English |
| publishDate | 2025-06-01 |
| publisher | General Association of Economists from Romania |
| record_format | Article |
| series | Theoretical and Applied Economics |
| spelling | doaj-art-d8a72d88c92145b2b973cc3b984a8c642025-07-28T07:54:42ZengGeneral Association of Economists from RomaniaTheoretical and Applied Economics1841-86781844-00292025-06-01XXXII228130018418678Is Balance of Payments a monetary phenomenon: doctrinal aspects and empirical evidence from IndiaN. KUBENDRAN0Rose Govindha RAJ1Balaram ROULA2 Pondicherry University, India Pondicherry University, India Pondicherry University, India The main aim of the study is to test the relevance and effectiveness of Harry Johnson’s monetary approach using the Balance of Payments Account and Money supply in India. The study uses annual data from 1991 to 2024, especially since the execution of LERMS in 1991. This study uses the Augmented Dickey-Fuller and Philips-Perron test for stationary conditions. In order to detect the automatic equilibrium process under a flexible exchange rate system and to analyse the short-run and long-run relationship, the study employed the Autoregressive Distributed Lag-Error Correction Model (ARDL-ECM) for analysis. The test results from the ARDL model depict that there is a long-run association between BOP and independent variables like Exchange rate, money supply and capital outflows. ARDL-ECM model did not find any causality in the short run. Also, the study did not find any automatic restoration process in India’s Balance of Payments since LERMS. So this study found less relevance of the monetary approach in solving disequilibrium in India’s Balance of Payments. Also, the study observed that the role of monetary policy is not effective in the context of India’s BOP. In the present scenario, this may not be an issue for an emerging economy like India. But in the long run, to achieve external equilibrium based on the Mundell-Flemings assignment rule, the study strongly recommended Friedman’s monetary rule for the effectiveness of the monetary policy. http://store.ectap.ro/articole/1845.pdf balance of paymentsardl modelexchange ratecurrent account adjustmentcapital movementsmoney supply |
| spellingShingle | N. KUBENDRAN Rose Govindha RAJ Balaram ROULA Is Balance of Payments a monetary phenomenon: doctrinal aspects and empirical evidence from India Theoretical and Applied Economics balance of payments ardl model exchange rate current account adjustment capital movements money supply |
| title | Is Balance of Payments a monetary phenomenon: doctrinal aspects and empirical evidence from India |
| title_full | Is Balance of Payments a monetary phenomenon: doctrinal aspects and empirical evidence from India |
| title_fullStr | Is Balance of Payments a monetary phenomenon: doctrinal aspects and empirical evidence from India |
| title_full_unstemmed | Is Balance of Payments a monetary phenomenon: doctrinal aspects and empirical evidence from India |
| title_short | Is Balance of Payments a monetary phenomenon: doctrinal aspects and empirical evidence from India |
| title_sort | is balance of payments a monetary phenomenon doctrinal aspects and empirical evidence from india |
| topic | balance of payments ardl model exchange rate current account adjustment capital movements money supply |
| url |
http://store.ectap.ro/articole/1845.pdf
|
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