An endeavor has been made to test the hypothesis that output and prices are sensitive to monetary policy shocks in India. The relevance of testing such hypothesis emerges from Classical and Monetarist views about the significance of the monetary policy to target output and prices. It has been concluded that targeting money supply effectively target output and prices during both long-run and short-run in India. Thus, the analysis reveals the fact that monetary policy is a significant instrument in attaining macroeconomic equilibrium. The findings are in the support of Keynesian, Neo-Keynesian and New-Keynesian school of thought, whereas, they are against the Classical, Neo-Classical and New-Classical school of thought.
Macroeconomics, Monetary Policy, Output and Price Stability
