Published Online:April 2026
Product Name:The IUP Journal of Applied Economics
Product Type:Article
Product Code:IJAE02042026
DOI:10.71329/IUPJAE/2026.25.2.30-51
Author Name:Rahul Bapu Chavan and K S Hari
Availability:YES
Subject/Domain:Economics
Download Format:PDF
Pages:30-51
This paper empirically examines the interactions among fiscal stance, output, money and prices in India using the autoregressive distributed lag (ARDL) model for the period 1985 to 2023 (pre-Fiscal Responsibility Budget Management Act (FRBM), 2003), 1985-2002, and (post-FRBM Act, 2003) 2003 to 2023. The results reveal that fiscal stance in India has a substantial impact on output, money and prices and vice versa. During crisis periods, such as the Global Financial Crisis 2007 09 and the Covid-19 pandemic, it was significantly expansionary in nature. The growth of monetary aggregate is closely associated with expansionary fiscal policy. Most of the world’s economies are in the process of redesigning the fiscal rules, which are unable to capture all the contingencies in the uncertain geopolitical world. Hence, India should also rethink its fiscal rules in combination with fiscal standards that offer more flexibility and discipline to achieve fiscal consolidation efforts, focusing on the interlinkages among fiscal stance, output, money and prices for optimal policy outcomes
The onset of the Great Depression of the 1930s falsified the theory of the self-correcting nature of the business cycle. Business cycles are fluctuations in aggregate economic activity, in which many economic activities expand and contract together in a recurring, but not periodic, fashion (Burns & Mitchell, 1946). As rightly pointed out by Burns and Mitchell (1946), business cycles recur; they happen over and over again, but not always at the same magnitude or after intervals of the same length. In these different business cycles, there are fluctuations in the macroeconomic variables such as output, money and prices.