| Title : | Determinants of inflation in Nepalese economy | | Material Type: | printed text | | Authors: | Krishna Prasad Chapagain, Author | | Publication Date: | 2016 | | Pagination: | 94p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Inflation (Finance)
| | Class number: | 341.247 | | Abstract: | Inflation has been a crucial macroeconomic variable that has gained considerable attention since long time back. The dynamics and behavior of the inflation is an important issue in the economists because it has implications towards the economic well being. Mankiew (2007) defined inflationas increase in average price and the rate at which money is exchanged for goods or services. High inflation is not always in favor of the economy as it adversely affects economic performance and purchasing power of the society.Moreover, it affects several economic variables such as saving, investment, interest rate, wages, income, level of employment and so on. Inflation depreciates domestic currency and imports become more expensive which further push up the domestic prices. In short, inflation is a burning issue in the macroeconomics thus, the main objective and function of central bank is to control inflation.
The study examines the determinants of inflation in Nepalese economy by using the eight economic variables such as GDP growth rate, broad money supply (M2), foreign exchange rate, interest rate, budget deficit, unemployment rate, Indian inflation and remittance inflows. The specific objectives of this study are to analyze the relationship and impact of GDP growth rate, broad money supply (M2) and foreign exchange rate on inflation in Nepalese economy. Also, impact of interest rate, budget deficit, Indian inflation and remittance inflow are examined in this study.
The study is based on the secondary data which were gathered for 10 economic variables. The main sources of data are Quarterly Economic Bulletin published by Nepal Rastra Bank (NRB), The World Bank Annual Report, Economic Survey of Ministry of Finance, Nepal, Four-Monthly Statistical Bulletin of Central Bureau of Statistics, Nepal.The time series data analysis has been undertaken in the study. The research design adopted in this study is causal comparative type as it deals with relationship between the dependent and independent variables taken for this study. The data were collected from the time period 2001 to 2015. The methods used for secondary data analysis included descriptive statistics analysis, correlation analysis and regression analysis.
The result shows that inflation is positively related to GDP growth rate, broad money supply (M2) which indicates that higher the GDP growth rate and broad money supply, higher would be inflation. Therefore, if the economy wants to control inflation then excessive money circulation in economy should be controlled. Similarly, interest rate and budget deficit have positive impact on Nepalese inflation indicating that higher the interest rate and budget deficit, higher would be the inflation. Thus, the study suggests that central bank should focus on to decrease the bank rate and credit creation. Also, an important measure to control the inflation in economy is to adopt anti-inflationary budgetary policy. For this purpose, the government should give up deficit financing and instead have surplus budgets. It means collecting more in revenues and spending less.
The study also reveals that Indian inflation has positive impacts on Nepalese inflation indicating that higher the Indian inflation, higher would be Nepalese inflation. Hence, concerned government bodies must be alert and apply appropriate tools and techniques to control inflation when there is probability of huge rise in Indian inflation. Similarly, there is positive relationship between inflation and remittance inflow. This implies increase in remittance leads to increase in inflation. However, unemployment rate has negative impacts on inflation which indicates that lower the unemployment rate higher would be inflation in Nepalese economy.
The major limitation of this study is that it has included the annual data of only 15 years. It would be better if the study has used the data of several years. There are other factors that influence the inflation in Nepalese economy such as political instability, corruption, black marketing and so on. Although there are limitation, the findings have significant result which can help to those who wants to make further study including these variables in determining the inflation in Nepalese economy.
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Determinants of inflation in Nepalese economy [printed text] / Krishna Prasad Chapagain, Author . - 2016 . - 94p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Inflation (Finance)
| | Class number: | 341.247 | | Abstract: | Inflation has been a crucial macroeconomic variable that has gained considerable attention since long time back. The dynamics and behavior of the inflation is an important issue in the economists because it has implications towards the economic well being. Mankiew (2007) defined inflationas increase in average price and the rate at which money is exchanged for goods or services. High inflation is not always in favor of the economy as it adversely affects economic performance and purchasing power of the society.Moreover, it affects several economic variables such as saving, investment, interest rate, wages, income, level of employment and so on. Inflation depreciates domestic currency and imports become more expensive which further push up the domestic prices. In short, inflation is a burning issue in the macroeconomics thus, the main objective and function of central bank is to control inflation.
The study examines the determinants of inflation in Nepalese economy by using the eight economic variables such as GDP growth rate, broad money supply (M2), foreign exchange rate, interest rate, budget deficit, unemployment rate, Indian inflation and remittance inflows. The specific objectives of this study are to analyze the relationship and impact of GDP growth rate, broad money supply (M2) and foreign exchange rate on inflation in Nepalese economy. Also, impact of interest rate, budget deficit, Indian inflation and remittance inflow are examined in this study.
The study is based on the secondary data which were gathered for 10 economic variables. The main sources of data are Quarterly Economic Bulletin published by Nepal Rastra Bank (NRB), The World Bank Annual Report, Economic Survey of Ministry of Finance, Nepal, Four-Monthly Statistical Bulletin of Central Bureau of Statistics, Nepal.The time series data analysis has been undertaken in the study. The research design adopted in this study is causal comparative type as it deals with relationship between the dependent and independent variables taken for this study. The data were collected from the time period 2001 to 2015. The methods used for secondary data analysis included descriptive statistics analysis, correlation analysis and regression analysis.
The result shows that inflation is positively related to GDP growth rate, broad money supply (M2) which indicates that higher the GDP growth rate and broad money supply, higher would be inflation. Therefore, if the economy wants to control inflation then excessive money circulation in economy should be controlled. Similarly, interest rate and budget deficit have positive impact on Nepalese inflation indicating that higher the interest rate and budget deficit, higher would be the inflation. Thus, the study suggests that central bank should focus on to decrease the bank rate and credit creation. Also, an important measure to control the inflation in economy is to adopt anti-inflationary budgetary policy. For this purpose, the government should give up deficit financing and instead have surplus budgets. It means collecting more in revenues and spending less.
The study also reveals that Indian inflation has positive impacts on Nepalese inflation indicating that higher the Indian inflation, higher would be Nepalese inflation. Hence, concerned government bodies must be alert and apply appropriate tools and techniques to control inflation when there is probability of huge rise in Indian inflation. Similarly, there is positive relationship between inflation and remittance inflow. This implies increase in remittance leads to increase in inflation. However, unemployment rate has negative impacts on inflation which indicates that lower the unemployment rate higher would be inflation in Nepalese economy.
The major limitation of this study is that it has included the annual data of only 15 years. It would be better if the study has used the data of several years. There are other factors that influence the inflation in Nepalese economy such as political instability, corruption, black marketing and so on. Although there are limitation, the findings have significant result which can help to those who wants to make further study including these variables in determining the inflation in Nepalese economy.
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