Search

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 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]

This study examines the dynamic causal relationships between house prices and their five determinants - real income, short-run real interest rates, real stock price index, real effective exchange rate, and real non-food bank credit - by using the quarterly data from 1996:Q1 to 2007:Q1 for India. Using the cointegration test and the vector error-correction model (VECM), the study finds that in the long run, real income significantly and positively influences the housing prices while real non-food bank credit adversely influences it. The variance decomposition results suggest that it is the shocks to the non-food bank credit that mainly explains the variability in housing prices, besides its own shocks being the most influential while other factors are not significant. This suggests that the role of credit availability as a supply side determinant cannot be underestimated in the dynamic behaviour of housing prices in emerging economies. [ABSTRACT FROM AUTHOR]

Abstract: The present study tries to examine the behaviour of various Indian interest rates such as call money rate, and yields on secondary market securities with maturity periods of 15–91 days, 1-year, 5-years and 10-years. In the first stage, the study investigates the determinants of interest rates and finds that although the interest rates depend on some domestic macroeconomic variables such as yield spread and expected exchange rate, they are mainly affected by the movements of international interest rates, although with some lags. The policy variables such as Bank Rate and Federal Funds Rate did not show any significant impact on any of the interest rates. Further, it was found that the interest rates in the very recent period show some cyclical movements similar to that of the developed countries. Future behaviour of interest rates show that the present cycle of each interest rate would peak at different time points. This expected behaviour in domestic interest rates could be due to the integration of the domestic economy with the international money and financial market. This trend may be same in most of the emerging economies of Asia. [Copyright &y& Elsevier]