Abstract
This study explores the inflation dynamics after following new economic policy in Indian economy by employing Restricted Vector Autoregressive technique. Inflation variable has cointegrating relationship with other macro economic variables. Money supply turned out to be most important variable in explaining the variation in inflation overtime followed by import index variable. IIP has inflation discouraging affect. Besides, apart from the economic variables, moral suasion factor has also been proved to be important in controlling Indian inflation. Cointegrating relationship among the variables has considerable bearing on the inflation dynamics. Moreover, inflation bears stable and correcting relationship with CPI and import index variables, however such relationship is unstable and explosive with money supply and IIP.
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