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The purpose of this paper is to re-examine the empirical relationship among alternative monetary aggregates (Ml and M2), output, prices, interest rates and exchange rates in India. The results of a five-variate vector error correction model are indicative of a bi-directional causality between each of the monetary aggregates and prices. Our findings of a feedback relationship make each of the monetary aggregates a poor intermediate target and informational variable. Moreover, contrary to most recent research in this area, the results are supportive of the real business-cycle view and the Keynesian monetary accommodation hypothesis rather than the monetarists' theory of the business cycle. [ABSTRACT FROM AUTHOR]

This paper investigates stationarity of four South Asian real exchange rates. In addition to the unit root tests that assume linearity in real exchange rate series, we apply tests to check stationarity that assume nonlinearity in a particular time series. Results from linear unit root tests (e.g. ADF and KPSS) unequivocally indicate that selected South Asian real exchange rates are all nonstationary. Different versions of a nonlinear unit root test, namely, the KSS tests, can only partially overturn these results. Overall, the real exchange rates of India, Pakistan and Sri Lanka seem to be conclusively nonstationary, while tests produce mixed results for Bangladesh. The findings have implications, among other, that PPP does not seem to characterize long run most real exchange rate movements in South Asia. [ABSTRACT FROM AUTHOR]