A study of RBI’s approach to money supply

Abstract

There is a never-ending discussion about the money supply process and its effect on macroeconomic variables, and the factors that influence the money supply are always under scrutiny. To that end, this article investigates what factors affect India's money supply and how policymakers have responded. This study provides a thorough evaluation of the primary factors that have historically determined the size of the money supply and how these factors have evolved through time. Using RBI's yearly data from 1990-1991 to 2014-2015, a monetary multiple process analysis was conducted. The article identified two primary factors—one that is close at hand and another that is policy oriented—but concluded that the latter had more influence than the former. The most crucial insight here is that the type and mix of both determinants have altered, which has policy implications.