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VOL. 8, ISSUE 1 (2026)
Exploring causal nexus among inflation, interest rate and economic growth in India
Authors
Swagata Saha, Dr. Sarbapriya Ray
Abstract
The objective of this paper is to explore the causal
nexus among inflation, interest rate and economic growth via GDP growth in
India and also to judge impact of inflation, interest rate on economic growth
via GDP growth in India using the annual data for the period, 1996-2024 which
includes the 29 annual observations. This study uses ADF unit root tests, GMM
regression, co integration test, vector error correction model and Granger
causality test etc. The GMM method suggests that inflation has insignificant
positive impact on GDP growth in India; interest rate has significant negative
impact on GDP growth. The co integration test confirmed that GDP growth,
inflation and interest rate in India are
co integrated, indicating an existence of long run equilibrium relationship among them as confirmed by the Johansen
co integration test results. The Granger causality test finally confirmed that
there may have significant causal relationship between inflation and GDP;
interest and GDP growth in unidirectional way which runs from inflation to GDP
and from interest to GDP in India which is also supported by variance
decomposition analysis (VDA). Quite similar results we find from the IRFs
analysis which suggests that an impulse
response function traces the effect of a one-time shock to one of the innovations on current and future
values of the endogenous variables like GDP, interest and inflation.
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Pages:77-83
How to cite this article:
Swagata Saha, Dr. Sarbapriya Ray "Exploring causal nexus among inflation, interest rate and economic growth in India". International Journal of Finance and Commerce, Vol 8, Issue 1, 2026, Pages 77-83
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