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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 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]