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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]

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]

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]