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India is one of the largest consumers of gold but remains largely unexplored and requires proper attention from investors, regulators and policymakers. Our study aims to uncover the relationship between policy uncertainty and gold prices in India, considering a timeline from 2004 to 2023. Using India EPU and geopolitical uncertainty-related index, the empirical estimation was performed in a time series framework using standard OLS and augmented regression using data from MCX-India and WGC prices. Our statistical investigation signals that policy uncertainty and gold prices in India are positively associated. This implies a higher degree of policy uncertainty and a higher gold price. Monetary policy uncertainty and interest rate changes shows an asymmetric impact on the gold price in India; the effects were more pronounced after 2015. Furthermore, policy uncertainty contains information explaining gold futures prices and has a two-month lag impact. Thus, gold trading in India is sensitive to the economic outlook of the economy and policy uncertainty. Gold imports in India have an adverse effect on gold prices. It is also reported that the INR/USD exchange rate plays a vital role in gold price setting. Hence, the study suggest that India's government should develop a healthy gold ecosystem and gold-policy. [ABSTRACT FROM AUTHOR]

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Covid-19 (C-19) has resulted in economic and financial meltdowns across the world. The countermeasures to tackle the virus created economic loss for people from every stratum. Macroeconomic indices like unemployment, inflation, and GDP growth rates were severely hit. This study estimates the C-19's volatility impact on four macroeconomic variables (gold prices, interest rate, crude oil prices, and exchange rate in the Indian economy. The paper uses daily time series data of the macroeconomic variables and cases of C-19 in India for the period from 5th January 2020 to 4th April 2022. The volatility impact of COVID-19 is measured using Bi-Variate GARCH models. The GARCH models (BEKK-GARCH [BG] and DCC-GARCH [DG]) provide robust results. The result finds the existence of both short and long-term C-19's volatility impact on all variables, although in different degrees. This paper is original since it considers the impact of these four variables altogether and the study contributes to the literature by capturing the volatility spillover effects of these four variables using BEKK-GARCH and DCC-GARCH. This paper significantly delivers key implications to policymakers to critically treat C-19 for economic stability while making policies. [ABSTRACT FROM AUTHOR]

The present study examines the long-run and short-run e¤ects of monetary factors (money supply, interest rate, inflation, and foreign currency exchange rate) on the Indian stock market. The study uses sophisticated econometric tools to analyse monthly observations from January 1993 to December 2019. The Augmented Dickey Fuller (ADF) test indicates that the variables involved in the present study are either I(0) or I(1). The Bai-Perron multiple break point test identifies four breakpoint dates in the Indian stock market index series. The breakpoint dates are incorporated as di¤erent dummy variables in the ARDL-ECM regression. The F-bounds test reveals that the variables in the study are cointegrated within the time period under consideration. Our findings show that the interest rate, which is a proxy for monetary policy instrument, and the foreign currency exchange rate have a negative impact on the Indian stock market both in the long-run and short-run. Furthermore, we find that structural changes significantly a¤ect the performance of Indian stock market. The study covers a long period of time, which the majority of previous work did not consider. Furthermore, the study uses di¤erent dummy variables in the ARDL model to represent structural breaks (as determined by the Bai-Perron multiple break point test). [ABSTRACT FROM AUTHOR]

This study assesses the role of monetary, fiscal factors, and trade openness causing variations of nominal and real interest rates in India for the deregulated regime. The autoregressive distributive lag (ARDL) bounds testing approach to cointegration finds that deposit rate, lending rate, and real interest rate have long‐run associations with the monetary, fiscal policy instruments, and trade openness. The error correction model representation of the ARDL framework finds that the broad money supply negatively impacts the deposit rate and the real interest rate, while positive impacts of income on each of the three interest rates are noticed. The fiscal deficit has a significant short‐term negative impact on the deposit rate and has a positive impact on the real interest rate. The exchange rate and openness to trade lower interest rates. The econometric appraisal may be perceptive to keep interest rate in the desired trail through the judicious adjustments of the policy instruments and deficit management. The significant impact of openness to trade on interest rates is a critical issue that the macroeconomic policy may face more challenges. [ABSTRACT FROM AUTHOR]

The active participation of the central bank in exchange rate management has accelerated the growth of foreign exchange reserve in India. The massive reserve stockpiling has substantially contributed to apprehensions about excess liquidity in the domestic economy. The extent to which these concerns are justified depends on the degree to which the central bank is able to mitigate its effects on monetary aggregates. This study is an attempt to assess the magnitude of the sterilization coefficient by using quarterly data from 1996 to 2019. In order to estimate sterilization and offset coefficients, the study employed the two-stage least squares (2SLS) method under the theoretical framework of simultaneous equation modelling. The findings show that the reserve accumulation through central bank interventions puts pressure on money supply. However, the RBI sterilization policy was effective as the central bank was able to sterilize 93 percent of its interventions, while the offset coefficient was 72 percent during the period of study. The low value of the offset coefficient compared to the sterilization coefficient indicates a high degree of monetary policy independence in neutralizing the central bank's purchase interventions. Based on the findings, it can be recommended that policymakers should consider the sustainability of interventions and sterilization operations as the dual policy objectives of independent exchange rate management and monetary policy cannot be achieved in the presence of a high interest rate in an inflation-targeting regime. [ABSTRACT FROM AUTHOR]

The significance, nature, and direction of the effect of inflation on economic growth and macroeconomic stability are contentious both in theory and empirical analysis. This paper examines the causal relationship between inflation and macroeconomic variables - interest rate, exchange rate, money supply, GDP, and fiscal deficit - in India, during the period 1986 to 2016, applying the vector correction (VECM) estimation method. The macro variables are stationary at first difference, and a cointegrating and causal relationship exists between the wholesale price index and interest rate, exchange rate, GDP, broad money, and gross fiscal deficit. The VECM estimates reveal that money supply and GDP are the most important macro variables in explaining the variations in inflation. The estimated error correction term shows that the shortrun disequilibrium is corrected by about 20% every period towards the long-run equilibrium. The impulse response results show that inflation responds positively to the money supply from the start to the 9th period. To promote economic growth and keep inflation low, money supply and budget deficits need to be rationalised. [ABSTRACT FROM AUTHOR]

The existing literature portrays that the instruments of monetary policy, such as interest rate, money supply, and price have a direct bearing on economic growth and social welfare. Against this background, the present study investigates the monetary policy transmission on manufacturing output in one of the fastest‐growing economies—India. Highlighting how the Central Bank works in a political–economic context, the precise research question used entails—how does monetary policy affect the manufacturing output in India? And what is the transmission channel and level of magnitude? To address these questions, we employed autoregressive distributed lag bounds testing for co‐integration on the time series data collected from World Development Indicators and International Finance Statistics for the period from 1980 to 2018. The model estimation affirms the presence of a co‐integrating relationship among the variables. In the short run, we have a mixed result of relationship among determining variables and manufacturing output, while in the long run, the lending rate has positive and the exchange rate has significant relationships among the variables. The variables such as consumption and gross capital formation have insignificant influence even though negative. The causality test reveals unidirectional short‐run causality stemming from lending rate to industrial output testifying lending rate‐driven growth. In a nutshell, the lending rate has long‐term positive relationship with that of industrial output, and the functional independence of the Central Bank has long‐term consequences on output and this requires a right chord of balance to be struck between political motives and the RBI's autonomy. [ABSTRACT FROM AUTHOR]

In the present globalization economic world, exchange rate plays a major role in every country's economic activity. Here, exchange rate policy has been identified as one of the endogenous factors that can affect the economic performance of a nation. Exchange rate plays a key role in international economic transactions because no nation can remain in isolation due to varying factor endowment. Movements in the exchange rate have ripple effects on other economic growth. The study used secondary data that were collected from the World Development Indicators data base and analysed. The study used the ordinary least square and VECM Granger Causality method of estimation for data covered the period from 1990 to 2017. The results from the econometric analyses show that there is a short‐run relationship between exchange rate, inflation rate, interest rate and GDP. The result obtained from the unit root analysis indicates that least one time series variable property is stationary. The study concludes that in India, the factors that influence the level of growth rate are extent of exchange rate and its variables. Based on the findings, from the Granger causality investigation procedure at 5% critical value are EXCH, INT, INF, IMP and EXP among other variables that affect economic growth. The study recommends the need to be technologically inclined in all sectors of Indian economy; excess and over budgetary inflation and implementation should be cut to barest minimal level to avert the ideal of external borrowing which most consequently result in external debt and services. The Indian government should show the path of redirecting its investment profile by channelling it towards capital projects of the government. [ABSTRACT FROM AUTHOR]

The appeal of Monetary Conditions Index either as an operating target or a monetary policy rule has waned over time. Its utility for assessing the monetary policy stance through the lens of alternative channels of monetary policy transmission, however, continues. This paper attempts to construct MCIs for India by approximating four major channels of transmission - interest rate, exchange rate, credit, and asset prices - and examine their suitability to assess the stance of monetary policy as well as the inflation outlook. The weights for these MCIs have been derived using ordinary least squares (OLS) as well as by employing impulse responses of shocks within a structural vector autoregression (SVAR) framework. Empirical findings establish the dominant influence of the interest rate channel in India and support MCIs as useful coincident indicators of monetary policy stance and as a relevant lead indicator of inflation. [ABSTRACT FROM AUTHOR]

The surge of capital inflow into emerging markets since the 1990s has attracted much research, but capital flight from these economies has received scant attention in research and policy debates, despite its severe implications. The present study attempts to address the issue of capital flight and gap in the literature. Our estimates show a steep increase in the magnitude of capital flight from India since 2003, and empirical results suggest that the significant determinants of capital flight are GDP and exchange rate. We find that higher interest rates discourage capital flight; while keeping interest rates high may partially restrict capital flight, it is infeasible, and may impede future economic growth. Our findings suggest the need for interventions and changes in the current policy framework to improve investment opportunities for residents and arrest capital flight. [ABSTRACT FROM AUTHOR]

The present study is an attempt to empirically investigate the impact of interest rates and foreign exchange rates on the movement of banking stocks in India (two from public sector and two from the private sector) for the period April 2013-March 2018 (weekly returns data). The study further makes an attempt to find out whether and to what extent different banks impact each other's return and volatility. The econometric tools employed to study the relation include OLS relation between the variables, GARCH(1, 1) methodology to determine the volatility spillover, autocorrelation and heteroscedasticity tests, and also Augmented Dickey-Fuller unit root tests. The results of the study show that the return of all the banks is mainly dependent on the return on Bank Nifty Index, while change in interest rate (91-day Treasury Bills) is not found to be influencing the return of any of the four banks. Evidence of spillover of return was seen more from the private sector banks to public sector bank's stocks. However, in case of spillover of volatility, there is evidence of bilateral spillover between ICICI Bank and PNB stocks. Also HDFC Bank's volatility was seen to impact SBI's volatility, while no impact was seen of any bank's stock on the volatility of HDFC Bank's stock. Further, OLS regression does not suffer from autocorrelation and heteroscedasticity. The bank returns were found to be stationary for all the variables. [ABSTRACT FROM AUTHOR]

Emerging exchange rate volatility and the uncertainty in exchange rate markets have become issue of concern for all countries, but these issues are intractable substantially for developing countries. This paper analyses the relationship between exchange rate and gross domestic product, external debt, foreign exchange reserve, interest rate, money supply in India covering the period 2008-2018. This study utilized time-series Vector Error Correction Model approach of unit root test, co-integration test, residual test and granger casualty test. The findings indicated that external debt and interest rate influences the exchange rate as displayed by Granger casualty test. Subsequently, exchange rate influences external debt, interest rate and money supply as shown by Granger casualty test. Taking into account a long-term relationship, external debt, foreign exchange reserves and interest rate moves positively however, gross domestic product and money supply moves negatively with exchange rate volatility in India. Future researchers should try to cover longer duration of study of above 10 years with different variable like crude oil price, trade balance, and foreign institutional investment. [ABSTRACT FROM AUTHOR]

Towards the objective of stable inflation and growth the RBI implements the monetary policy through monetary transmission process ensuring sustainability in country's economy. It happens through various channels such as; interest rate channel, credit channel, exchange rate channel and asset price channel. This study is based on the monetary transmission mechanism with specific context to India. It primarily focuses on the process of monetary transmission through the interest rate channel. [ABSTRACT FROM AUTHOR]

The study attempts to establish the relationship between banking stock prices in India (S&P BSE BANKEX) and macroeconomic variables namely index of inflation, foreign exchange rate, industrial production, interest rate and money supply over the period of 9 years from April 2009 to March 2018. The study applies unit root tests and finds all variables to be non-stationary at level but integrated of the first order. It then employs Johansen's co-integration test in order to estimate the presence and number of co-integrating vectors and vector error correction model (VECM) to identify relationships. While the study finds that macroeconomic variables are co-integrated with banking stocks in India, short-run dynamics to establish equilibrium were absent among them. It is observed that banking stocks relates positively to industrial growth and negatively to money supply. While banking stock prices were positively linked with inflation & foreign exchange rate and negatively linked with interest rates, their relationship was not statistically significant. [ABSTRACT FROM AUTHOR]

We study the oil price and the USD/INR exchange rate volatility co-movement using a modified multivariate Dynamic Conditional Correlation (DCC) - GARCH model. The model jointly estimates the dynamic conditional correlation of USD/INR rate with volatility in oil price in the presence of the USD/EURO rate providing control for any exogenous variability. The findings reveal that oil and USD/INR volatility co-movement is weak. However, the unusual global events like the financial crisis of 2008 and oil prices crash of 2014 lead to strong co-movement. We provide empirical evidence for USD/INR as a better choice for the Central Bank of India (RBI) to monitor for the policy design that deals with inflationary effects of oil price, interest rate change, and overall economic stability. The findings have implications not only for policymakers involved in controlling negative impacts on the real economy due to exchanged rates fluctuations or inflationary effects of oil price but also for risk management practitioners involved in managing effects of adverse oil shocks and exchange rate movements. [ABSTRACT FROM AUTHOR]

The Reserve Bank of India (RBI) used exceptional monetary measures to address the taper tantrum-induced exchange market pressure on the rupee in the third quarter of 2013. This paper provides theoretical and empirical justifications for using the monetary policy to defend the exchange rate under exceptional circumstances, and also outlines certain preconditions which may determine the success of such a policy response. The empirical hypothesis on the effectiveness of an interest rate defence has been examined using four alternative approaches: first, the conventional monetary approach to exchange rate; second, uncovered interest rate parity (UIP) condition in the presence of timevarying risk premium; third, impact assessment in a vector auto regression (VAR) framework; and fourth, a comparative quantitative assessment of the costs associated with depreciation of the rupee relative to a higher interest rate for the Indian corporate sector in a panel regression framework. The scope for different policy inferences that could be derived from the results of alternative approaches highlight the need for a careful assessment of preconditions while designing and applying monetary measures to stabilise the exchange rate. [ABSTRACT FROM AUTHOR]

Predicting currency movements is perhaps one of the hardest exercises in economics as it has many variables affecting its market movement. This study concerns with some of the usual macroeconomic variables which, in theory, are expected to affect the exchange rate between two countries. Indian Rupee is currently losing its value to the Dollar which could certainly be seen to affect the Indian economy adversely. This paper attempts to investigate the interactions between the foreign exchange and stock market in India as well as determine some of the economic factors which could have influenced the Indian rupee vis-à-vis the US Dollar over the period 1990-2011. This paper studies the effect of exchange rate on three market indices; BSE Sensex index, BSE IT sector index and BSE Oil & Gas sector index for the period January 2006 to March 2012. No significant interactions were found between foreign exchange rate [USD/INR] and stock returns. Economic variables like inflation differential, lending interest rates and current account deficit (as a percentage of GDP) are found to significantly affect the exchange rate [USD/INR]. This study also analyzes how the real GDP of India is currently behaving with respect to the exchange rate. It is found that they share a negative relationship which is highly statistically significant. [ABSTRACT FROM AUTHOR]