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No. 335

April 2004


ISSN 0019-5170



  Monetary Policy and Inflation Control: The Relevance of Rational Expectation Hypothesis in Contemporary Nigeria


This study investigates whether the ineffectiveness of anti- inflation (monetary) policy could be explained in term of the incredibility of policy and loss of public confidence in these policies using quarterly data from Nigeria economy. We adopted the Rational Expectation Theoretical framework and specified a monetarist's model with agents expectation formed rationally. This model was estimated using the Two Stage Least Square (TSL) technique. The findings from the empirical analysis showed that public response to government monetary policy was slow and with extreme long lags. It was also found that unanticipated rather than the systematic component of monetary policy was significant in determining the inflation trend in Nigeria. This implies that monetary policy has been inconsistent and incredible over the sample period investigated in Nigeria. We, therefore, concluded that anti-inflation monetary policy could be effective only if it is credible and consistent.

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  Structural Changes in the Indian Economy: Implications for the Food-Surplus States.


Indian economy has been showing higher growth trend during the decade of the 1990s after performing well in the preceding decade of the 1980s. However, this growth trend is not followed by many states particularly the five major food-surplus states of India, viz., Haryana, Madhya Pradesh, Punjab, Rajasthan and Uttar Pradesh. Although their contribution in food grains output in the country has been increasing, their growth trend got lowered in the 1990s. Pattern of structural changes in the Indian economy and these states are also dissimilar. Whereas, at the country level due to structural changes in the economy, tertiary sector has been taking the economy forward and there is greater inter- sectoral linkages, among the food-surplus states the tertiary sector could not compensate for the slowed performance of the commodity producing sectors. Rather, there have been weakened relationships between agriculture and industry. For the Indian economy to grow at higher pace in the long run, strategy must be designed in such a way that these states are also growing at faster pace and showing desirable structural changes in their respective economies and acting as the lagging economies because the economy also shows that the food-surplus states are big and from northern India only.

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 Federal Government Budget Deficits and the Crowding out of Private Investment in the United States: Evidence for the 1990s


This study investigates whether federal government budget deficits in the U.S. over the 1990-1999 period acted to crowd out private investment in new plain and equipment. Using quarterly data, empirical estimation clearly indicates that private investment was in fact negatively impacted by the budget deficit.

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Fiscal Deficit and Private Consumption Behaviour in Nigeria: 1970-2001


The objective of this study was to examine the linkage between fiscal deficit and private consumption spending in Nigeria during the period 1970 to 2001. The Vector Error-Correction methodology was employed. The result suggested an overwhelming evidence on the influence of fiscal policies on private consumption directly through the substitution effect between private and public consumption and indirectly through other macroeconomic variables such as the real interest rate, foreign savings, money supply and domestic credit to the private sector.

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 A Test of Monetarist Model of Imported Inflation: A Comparison of India's Case with Open Economies


The paper discusses the theory of monetary approach to balance of payments and constructs an empirically testable model of important inflation from it. There are some unique feature of the monetary approach to balance of payments such as its focus on capital flows as a source of disturbances in balance of payments and the assumed stability of demand for money of an economy. While few economists in recent refers have tested monetary approach to balance of payments, there is a need of investigating the phenomenon of imported inflation by using monetary approach to balance of payments.
The process in which the importation of inflation occurs is as follows: An increase in worldwide inflation can make an increase in capital inflow of an open economy. In the absence of successful sterilization process by the domestic monetary policy, (and under fixed exchange rates) the economy may end up with increase in broadly defined money supply as the foreign reserves in it go up. This increase in money supply can be inflationary.

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Exchange Rate Determination Under Currency Substitution for Asian Countries


In this paper, the long-run equilibrium relationship between exchange rate and currency substitution is investigated for Indonesia, Japan, Korea, Malaysia, Singapore and Thailand for the period 1980 to 1996. The hybrid portfolio-monetary model of exchange rate determination is derived and extended to incorporate the currency substitution factor. The domestic demand for foreign and currency (U. S. dollar) variable is built into the model, i.e. home residents are allowed to hold both domestic and foreign currencies denominated assets. We observe that currency substitution is a significant factor along with other fundamental macroeconomic variables (i.e. money, income and interest rate), in the long-run exchange rate determination for four of the six countries examined, i.e. Indonesia, Malaysia, Singapore and Thailand.

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Globalization of Business and Information Technology


The Keynesian economic policies which address the problems of high inflation, unemployment, and budget deficit have been implemented by developed and developing nations since the 1940's. Intervention of the state in each sector of economic activity through manipulation of fiscal policy has not been effective due to economic slow down. Inefficiencies such as stag inflation (high unemployment and high inflation rates); trade deficits; and balance of payment deficit in the late 70's and early 80's are example of this slowdown. Around the seventies, a new school of thought called Monetarism (led by Professor Milton Friedman) has come into existence, this school of thought attacks the Keynesian policies and offers monetary policy without government intervention, and allows free play of supply and demand to solve economic problems. Industrialized economies as Canada, U. S. A., Germany, United Kingdom and developing nations such as India, Pakistan, China and Malaysia have shifted their controlled economies to market economies by lowering tariff barriers on imported goods, and by allowing foreign companies to establish subsidiaries which can compete with domestic firms. The non- controlled market environment in the emerging markets of Asia, Africa and Latin America have attracted the attention of multinational corporations in the industrialized world allowing them to globalize their operations. It is coincidence that, around the same time, information technology had begun to exercise its impact through varied aspects and this has helped businesses expand their activities. Globalization and information technology are like two religions merged together with the nineties to cater to the needs of a large group of followers.

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 Income Convergence Under the New Economic Model: The experience of Latin American and Caribbean Countries


This paper examines whether the Latin American and Caribbean region has indeed succeeded in meeting the challenge of development after over two decades of the New Economic Model. The success of the NEM of Latin America and Caribbean region is measured here in terms of their ability to catch up with other developed countries in terms of real per capita income or income convergence. Beta and Theta estimates are used in the paper as the measures of convergence. Theta convergence measure indicates in increase in the disparity between OECD and the Latin America and Caribbean region during the years preceding and following the crisis of 1984-85. However, a decline can be perceived in the post-reforms period. Beta convergence measure for the region as a whole does not show evidence of narrowing income gap with the OECD. However, the Beta convergence measure of the sub-sample of the Latin American and Caribbean countries that were found more integrated with the world economy as compared to other countries in the region, indicate that they have been catching up with OECD countries in the recent years.

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Economic Reforms and Technical Efficiency of Indian Textile Industry: A Non-Parametric Frontier Approach


This paper aims to analyze the impact of economic reforms process on the technical efficiency of Indian textile industry using time series data for the period 1973-74 to 1997- 98. A non-parametric frontier approach has been utilized to measure technical efficiency and its components. The empirical results indicate that the process of economic reforms during eighties failed to mark a significant dent on the level of operating efficiency in Indian textile industry. Nonetheless, a significant increase in overall technical efficiency has been observed during most recent phase of liberalization process. Another important finding of the study is that the process of capital deepening had a positive affect on the overall technical efficiency of Indian textile industry.

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Export-Led Growth Hypothesis in Asian Countries: Co integration and Causality Analysis


This study investigates the causal relation between export and economic growth for eight Asian countries for the period before the 1997 Asian crises. The countries are India, Pakistan, Philippines, Singapore, Sri Lanka, South Korea, Thailand and Turkey. The empirical methodology involves investigating a co-integrating relationship between export and output growth and specifying an error correction mechanism to detect a causal relation between these two series. This study finds evidence of bi-directional causality for Turkey, S. Korea, Singapore, Philippines and India. However, the causality runs from export to output growth for Thailand and from output to export growth for Pakistan and Sri Lanka.

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