Role of inflation and money supply in india’s twin deficit

The present study analyzes the role of inflation and money supply in India’s current account deficit and fiscal deficit and assume that fiscal deficit and current account deficit move together. The long run relationship exists between current account deficit and fiscal deficit and money supply & inflation are mediating variables which affect current account balance. The research covers the period from 2000-01 to 2014-15. In order to accomplish the objective of twin deficit relationship, the empirical study starts with checking of normality with the help of unit root test of stationarity. To know the integrity between the variables Johansen cointegration test has been applied. Then vector error estimates test has been used. At last impulse response function test has been applied.