The proximate determinants of money supply in India, 1951-1975
Mukherjee, Amitava (b. 1951)
Besen, Stanley M.
Master of Arts
It is the principal concern of this thesis to examine the proximate determinants of money supply in a developing economy, India, over the period 1951 to 1975. This essentially involves an examination of the behavior of the money multiplier and its determinants, the reserve ratio and the currency ratio, and the behavior of high-powered money. Of principal concern is the identification of the more important factors affecting the changes in money supply, both primary money created by the Reserve Bank of India, and secondary money created by the commercial banks. It has been found that the role of the high-powered money in the determination of the Indian money stock, over the period under study, has been the dominant one. The money multiplier has played only a secondary role. Since the multiplier has not exhibited wide variations, it should be possible for the Reserve Bank of India to exercise control over the money stock.However during the period Under examination, the Reserve Bank of India has been unable to control the stock of high-powered money since it had to extend large amounts of credit to the Government of India. The effect has been to substantially weaken the control of the Reserve Bank over the stock of money.