Impact of supply of money on food prices in India: A causality analysis

This study attempts to investigate the direction of casualty between food prices and money supply in the static and dynamic framework. We found that narrow measure of money supply (M1) Granger causes food inflation while broad measure of money supply (M3) does not in the static framework. This implies that money supply (M1) is not neutral in determining food prices in the long run in the Indian context. From the dynamic framework of analysis we found that any one innovation in the broad measure of money supply (M3) will have positive impact on the food inflation for next three years