Does Black Income Impact Monetary Aggregates, Inflation and Interest Rate In India? An ARDL Analysis with Granger Causality

Abstract

Black income is presently the most important economic issue in India. This study demonstrates its macroeconomic impact on base and broad money, currency with the public, interest and inflation rate. Black income is co-integrated with them. The long-run causality between black income and these variables is unidirectional and stable. Black income Granger causes monetary aggregates and nominal interest rate in short run, but Granger causes inflation rate only in the long run. It has predictive content for monetary aggregates, nominal interest and inflation rate that could be used in monetary policy formulation.