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During the COVID-19 pandemic, the Reserve Bank of India (RBI) undertook a policy mix approach to maintain financial stability in the Indian banking system. RBI recapitalized the banks and infused liquidity through accommodative monetary policies combined with temporary forbearance policies of restructuring loans to boost credit growth and support economic expansion. With a focus on zombie lending, we examine the effectiveness of this policy mix in bank lending channels during the pandemic. We find banks have extended credit growth to the non-financial listed firms. Broadly, we obtain little evidence of credit misallocation to these firms through zombie lending. Subsequently, we observe a decline in zombie lending to manufacturing and small and medium enterprises. However, our result shows a significant increase in zombie lending towards high rent-seeking industries. We witness that zombie lending does not crowd out healthy lending through the bank and industry congestion channels. The results of our study have significant implications for policymakers. Specifically, our findings suggest that accommodative monetary policy reduces credit misallocation concerns of forbearance. In the absence of monetary policy support, forbearance alone may exacerbate adverse effects. [ABSTRACT FROM AUTHOR]

In this paper, we examine the effect of monetary policy on liquidity creation (LC) by banks in India. We also study the role of bank characteristics in the transmission of monetary policy to LC. We apply static and dynamic panel regressions to bank‐level data from India, spanning the period 1999–2020. We find a negative impact of monetary policy tightening on total as well as on‐balance sheet LC. We also find that the capital, size and profit of banks support the monetary policy transmission to LC. Finally, the LC channel seems to operate for both public sector and private sector banks. Our findings suggest that the monetary policy authority must closely monitor bank‐level characteristics to improve the efficacy of the LC channel of monetary policy. [ABSTRACT FROM AUTHOR]

India is the second most populous country in the world and stood at seventh rank in a major climate risk index in 2019, which is a grave concern for the Indian government, policymakers and environmentalists. Therefore, the present study examines the role of fiscal policy and monetary policy instruments along with select macroeconomic variables on carbon emission in India over the period 1971–2019 in the non‐linear framework. The outcome of the study reveals that the impact of fiscal and monetary policy instruments on carbon emission is asymmetric in nature. In addition, the positive and negative shocks in fiscal and monetary policy instruments have a positive and negative impact on carbon emissions, respectively. Based on the coefficients' magnitude, the role of fiscal policy instruments has a more prominent effect on carbon emissions than monetary policy instruments. The findings of the study imply that the Indian government is required to implement green fiscal and monetary policies. Use fiscal policy to implement a 'green tax ratio' and a 'green subsidy programme' for manufacturers and investors to reduce CO2 emissions. A 'green lending programme' should be introduced for commercial banks by implementing monetary policy via the central bank. [ABSTRACT FROM AUTHOR]

Energy and electricity are critical prerequisites for every nation and critical components of social and economic growth. The monetary policy economist has been debating the issue of relying on core inflation or headline inflation, which includes energy, because the energy price is so volatile that it obscures the trend in inflation and dilutes the objectives of monetary policy. This paper aims at analyzing the impact of the twin deficit on energy inflation within a linear and nonlinear framework in India using time series data covering the period from 1971 to 2021. ARDL and NARDL approaches are employed to investigate the linear/symmetric response of energy inflation due to the twin-deficit in India. Estimates show a negative relationship between the twin-deficit and energy inflation in a symmetric model. The results of the asymmetric model reveal that the response of energy inflation due to expansionary fiscal policy (increment in CFD) and contractionary fiscal policy (decline in CFD) is diverse, in terms of size of the coefficient. Further, estimates of NARDL show the distinct impact of increases and decreases in CAD on energy inflation. The study offers several implications for policymakers and energy economists. [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 introduction of Central Bank Digital Currencies (CBDCs) as legal tender in various nations is something that several Central Banks around the world are planning in the near future. Similar intentions have been made public by the Reserve Bank of India (RBI), and an Indian CBDC can be expected soon. For any assessment of the impact, an evaluation of the potentials and difficulties brought on by the adoption of CBDCs is necessary. The current financial system is observing the entry of CBDC. The development of CBDC is accelerating the advancement of blockchain technology and virtual currencies with the support of Central Banks around the world. In this study, we examine the existing research on CBDC's in different countries. This research paper is analysing the differences between India's digital rupee and private Cryptocurrencies. Our current analysis can offer recommendations for the Introduction of Digital rupee in India. [ABSTRACT FROM AUTHOR]

Purpose: A change in monetary operating procedures provides a natural experiment which is used to evaluate, first, whether Indian monetary policy transmission is better when durable liquidity is in surplus or when it is in deficit; second whether it is better with interest rates as the policy instrument or quantity of money or a mixture of the two. Design/methodology/approach: This study first shows that the period of analysis can be divided into two separate regimes one of liquidity surplus (2002–2010) and the other of deficit (2011–2019).This study then estimates separate structural vector auto-regressions (SVARs) for the financial and real sector, with relevant exogenous foreign, policy and other variables for each of the periods as well as SVARs for the whole period with alternative operating instruments. Findings: Monetary transmission from the repo rate was better during the period the liquidity adjustment facility (LAF) was in surplus with the central bank in absorption mode denoting excess durable liquidity. Pass through was faster and the repo rate had a greater influence on other variables. The impact of the rate on output gap exceeds that on inflation. The weighted average call money rate was found to outperform others as the operating target. Monetary policy has evolved so that policy rates are more effective in transmission compared to money supply, but best results are when durable liquidity is also in surplus. Originality/value: The results contribute to ongoing debates on the Indian monetary policy framework and give useful inputs for policy in emerging markets where research is scarce. They suggest keeping the LAF in deficit mode over 2011–19 was not optimal. [ABSTRACT FROM AUTHOR]

• We estimate macroeconomic shocks using a medium scale new Keynesian model for India. • Our smoothed estimates of shocks mimic the actual transition of the economy during 1997–2019. • We find that the interest rate remained contractionary during 2013–16 despite falling inflation, characterized as policy error. • If supply side shocks (adverse productivity or mark-up) dominate, such policy errors tend to occur. • Such large-scale policy error can disrupt financial intermediation by creating bad assets in the banking sector. In the immediate aftermath of the global financial crisis, the monetary policy in India became accommodative as in other major economies, but the policy subsequently turned highly contractionary despite falling inflation, which we characterize as policy errors. Government expenditure also had similar pattern. This paper therefore estimates a medium scale New Keynesian model (with earnings and assets based collateral constraint) to explore the impact of such policy errors on Indian business cycles, capturing the prevailing narrative on both monetary and fiscal policies along with the actual inflation scenario. Our smoothed estimates of mark-up, productivity, interest rate and government expenditure shocks mimic the actual transition of the economy, with both policy shocks moving together in a similar pattern in the post crisis period. We find that the interest rate policy was highly contractionary during 2013-2016 which led to significantly lower output. We rationalize that if supply side shocks (adverse productivity or mark-up) dominate, such policy errors tend to occur, suggesting that policy makers need to pay attention to the sources of inflation in a developing economy while setting demand-management policies. Given the current pandemic as more of a adverse supply shock, similar policy errors are likely to occur if interest rate responds to this type of inflationary shocks. [ABSTRACT FROM AUTHOR]

Food insecurity and hunger are significant components of standard poverty measures and continue to be pressing issues in emerging market economies. However, these issues have received less attention in examining the indirect effects of monetary policy. In this paper, we study the impact of monetary policy on food inequality in India. Specifically, we examine the impact of monetary policy shocks on relative food prices and the distribution of food consumption, focusing on subsistence food consumption of poor households. Using the most recent household survey data, we estimate the dynamic effects of monetary policy shocks on relative food prices and the distribution of food consumption in rural and urban India using a dynamic common factor model. Our results show that expansionary monetary policy shocks increase the relative price of food, reduce the food consumption of poor households, and raise food consumption inequality across households. Increase in the relative price of food following a monetary expansion disproportionately hurts the poor relative to the non-poor. This is the first study to provide evidence of a 'food price channel' in monetary policy transmission to understand food inequality. This study holds important policy implications for Indian central bankers and policymakers as well as for those in similar emerging market economies. [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]

Over the years, there has been an increasing debate over the role of the Central Bank in targeting the policy objectives and the extent to which the targets can anchor the expectations. The present study seeks to identify the linkage between monetary policy and financial stability in India. The study, based on quarterly data from January 2001 to July 2018, finds that the financial sector allied variables (BSE SENSEX index, Exchange Rate and Index of Industrial Production) have shown significant response to shocks in the policy rate, that is, reverse repo rate, except for exchange rate variable that was taken as a proxy for external sector stability. Also in the short‐run, when a shock is imparted to the policy rate, the response of the exchange rate is insignificant. Other than that, the corporate sector along with real output growth and banking sector variables induces a significant change in policy rate when a shock is introduced. With variables responding in the ideal direction to shock in the policy rate, it is inferred that the movement is in line with what ideally should hold over time. This leads us to conclude that the monetary policy safeguards financial stability in India. [ABSTRACT FROM AUTHOR]

The monetary policy framework of India has undergone several transformations reflecting underlying macroeconomic and financial conditions as also the dominant socio‐politico‐economic paradigm. The present study makes pertinent commentary notes on different monetary policy approaches, including, for instance, the era of development planning, the era of monetarism, the era of multiple indicator approach, and the era of inflation targeting in India along with their respective advantages and disadvantages. [ABSTRACT FROM AUTHOR]

Financial liberalization has been a gradual, calibrated and uneven process in India. Since the early 90s, Indian financial system has been transformed in accordance with a market-led economic strategy aiming to attract foreign investments and prepare its integration into the international financial circuits, through institutional changes, regulatory easing, public monopolies ending, etc. A few years after the 2008 global financial crisis, during the Modi government, the financial liberalization process has been significantly renovated and reinforced. In addition, old and new challenges have been (re)emerged, and domestic and external factors also have had considerable impacts by unveiling and aggravating systemic fragilities. In this context, the objective of this article is to analyze the financial deregulation process and its political and economic implications for India in the course of Modi's first government, in view of the foreign investments, the banking system, the insurance sector and the monetary policy. [ABSTRACT FROM AUTHOR]

Purpose - Though an accumulating body of study has analysed monetary policy transmission in India, there are few studies examining the differential impact of monetary policy action. Against this backdrop, this study aims to analyse the differential impact of monetary policy on aggregate demand, aggregate supply and their components along with the general price level in India. Design/methodology/approach - The study develops a structural macroeconometric model, which is primarily aggregate and eclectic in nature. The generalized method of movements is used for estimation of behavioural equations, while a Gauss-Seidel algorithm is used for model simulation purposes. Findings - The paper presents the results of two policy simulations from the estimated model that highlight the differential impact of monetary policy. The first one, hike in the policy rate by 5%and second is a reduction in bank credit to the commercial sector by 10%. The results from the first policy simulation experiment reveal that interest hike has a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is borne by investment demand and imports followed by private consumption. While as among the components of aggregate supply maximum impact is born by infrastructure output followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. The results from the second policy simulation experiment revealed that pure monetary shocks have a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is born by private consumption and imports followed by investment demand. While as among components of aggregate supply maximum impact is borne by infrastructure followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. From both policy simulation experiments, the study highlighted the relative importance of the income absorption approach as opposed to the expenditure switching effect. Practical implications - The results obtained in this study provides a strong framework for design the monetary policy framework. The results are in a view of the differential impact of monetary policy action among the components of both aggregate demand and aggregate supply. This reflection of differential impact has immense significance for the macroeconomic stabilization as the central bank will have to weigh the varying repercussion of its actions on different sectors. For instance, the decline in output after monetary tightening might be conceived as mild from an overall perspective, but it can be appreciable for some sectors. This differential influence will have an implication for policy design to care for distributional aspects, which otherwise could be neglected/disregarded. Similarly, the output decline may be as a result of either consumption postponement or a temporary slowdown in investment. However, the one emanating due to investment decline will have lasting growth implications compared to a decline in consumer demand. In addition, the relative strength of expenditure changing or expenditure switching policies of trade balance stabilization may have varying consequences in the aftermath of monetary policy shock. Accordingly information on the relative sensitiveness/insensitiveness of different sectors/components of aggregate demand towards monetary policy actions furnish valuable insights to monetary authorities in framing appropriate policy. Originality/value - The work carried out in the present paper is motivated by the fact that although a number of studies have examined the monetary transmission mechanism in India, a very few studies examining the differential impact of monetary policy action. However, to the best of the knowledge, there is no such studies, which have examined the differential impact of monetary policy in the structural macroeconometric framework. The paper will enrich the existing literature by providing a detailed account of the differential impact of monetary policy among the components of both aggregate demand and aggregate supply in response to an interest rate hike, as well as a decrease in the money supply. [ABSTRACT FROM AUTHOR]

Purpose - Among the many factors fueling the inflationary tendencies in an economy such as monetary shocks, structural shocks, demand shocks, external shocks and demographic changes, the issue of inflation (INF) has also been found to be related to fiscal policy decisions of the government. The purpose of this study is to investigate the inflationary tendencies in India particularly from the fiscal point of view. The study also examines the influence of other potential determinants such as output growth rate, interest rate, tradeopenness (TO) and oil price inflation (OPI). Design/methodology/approach - To examine the dynamic nature of association between fiscal deficit and inflation, the study applies the Toda-Yamamoto (1995) test and Breitung and Candelon (2006) test to investigate the nature of causality in time and frequency domain frameworks. In addition, to scrutinize the possibility of a long-run association, that too from an asymmetric point of view, the study applies a Non-linear Autoregressive Distributed lag model (NARDL) given by Shin et al. (2014). Finally, non-linear cumulative dynamic multipliers are used to trace the traverse between disequilibrium position of short-run and subsequent long-run equilibrium of the system. Findings - The authors found a unidirectional causality from fiscal deficit to inflation in case of time domain analysis and no feedback causality is reported. However, in case of frequency domain design, causality from fiscal deficit to inflation is found at low frequencies only, i.e. no short-run causality is established and hence dynamic nature of the relationship between the two variables is vindicated. Using NARDL model, the results document the existence of an asymmetric long-run direct association between fiscal deficit and inflation. However, an increase in deficit is found to be more inflationary and a decrease affects the inflation with a lower magnitude. The asymmetric impact of fiscal deficit on inflation can be explained through the existence of liquidity constraints, consumption-investment downward inflexibility and the downward price stickiness. Contractionary monetary policy action is found to be more effective than an expansionary one, signifying the asymmetric influence of monetary policy actions on the inflation of India. Similarly, in a supply-constrained economy with downward price rigidity, the authors found an asymmetric impact of output growth and output decline on inflation. As regard to the trade-openness, although an asymmetry is reported, the signs refute the validation of Romer (1993) hypothesis. Finally, the impact of oil price inflation on the inflationary pressures is according to theory but the coefficients are devoid of statistical significance. Practical implications - These results indicate some important policy recommendations. Fiscal consolidation strategy should be executed in an appreciable manner to achieve the sound fiscal health and lower INF. The disciplined fiscal strategy would also be imperative for an effective monetary policy. Monetary authorities should possess noticeable credibility to manage the macroeconomic system and policy stances should be implemented according to requirements of the economy. Growth in output should be encouraged to have twofold benefits to the economy - reducing INF on the one hand and fiscal deficits on the other. Originality/value - The study contributes to the existing literature in the following ways. First, taking note of dynamic nature of the relationship between these two variables, the study examined the deficit INF nexus in a dynamic and asymmetric framework. The novelty of the study is ensured by the very nature of it is the first study in case of India to identify the fiscal INF in an asymmetric configuration. The authors applied a NARDL model, given by Shin et al. (2014) to examine the existence of any cointegrating relationship in an asymmetric paradigm. Second, the nature of causality between fiscal deficit and INF has been examined in a time domain and FD framework to portray precisely the casual interactions between these two variables in the short-run and long run. The study will, therefore, enrich the existing literature along the asymmetric lines. [ABSTRACT FROM AUTHOR]

This article argues that, starting from the late colonial period, the Indian state in its correlated attempts to regulate and streamline the operation of monetary markets in line with capitalist development policies and to remove exploitative credit market practices instead produced a binary between a monetary outside and inside. While the state's efforts were intended to delineate the boundaries of the outside produced in this way, removing competing segments of Indian capital from the expanding monetary system, this process of delineation contributed to an already existing divergence in the operational modes. Correspondingly, it reinforced a process of differentiation that centred on the removal of liberal-bourgeois contractual law from market governance on the monetary outside that was gradually substituted by a reputational economy of debt. The monetary outside so produced constitutes one specific form of capitalist outsides in the Indian economy, interpreted as economic arenas and (extractive) accumulation regimes that functionally and procedurally differ from the dominant capitalist economic sector in modern India with which they co-exist. Both historiographic and ethnographic approaches are used to study the related processes of delineation and differentiation in the production of a monetary outside, with a special emphasis on the United Provinces/Uttar Pradesh and the north Indian town of Banaras (Varanasi). [ABSTRACT FROM AUTHOR]

The existing empirical studies on the effectiveness of RBI intervention in the exchange rate market are based on single equation/GARCH models. Recognizing the interdependence between exchange rate returns, conditional volatility of exchange rate and RBI intervention, this study uses a simultaneous equations framework to examine the efficacy of intervention by RBI. Additionally, we control for the impact of macro-economic fundamental variables and micro-structure variable in our model. The econometric methodology used in the study includes two steps. In the first step, DF-GLS, Ng-Perron and, Lee and Strazicich unit root tests are used to examine the stationarity of the variables. In the second step, the simultaneous equations model is estimated using the generalized method of moments (GMM)-IV. This study is based on secondary data at monthly frequency, spreading from 1996:08 to 2016:10.The main findings of the study are as follows. The results of unit root tests suggest that all variables included in the analysis are stationary. The system GMM-IV estimates of the model indicate that exchange rate returns are influenced by RBI intervention, output growth differential, money supply growth differential, stock market returns, capital flows, EUR-USD exchange rate returns, change in trade balance differential and order flow. Additionally, the estimates of exchange rate volatility equation suggest that RBI intervention significantly decreases exchange rate volatility. Further, we find that volatility in capital flows has significant and positive impact on exchange rate volatility. The estimates of the central bank intervention equation suggests that exchange rate returns have a significant and negative impact on RBI intervention in foreign exchange rate market. We also find evidence for the presence of asymmetry in RBI intervention. The key implications of the study indicate that RBI intervention is effective in stabilizing the Indian exchange rate market in the face of both domestic and external shocks. Furthermore, exchange rate returns are significantly affected by RBI intervention, macro-economic variables and micro-structure variable. The findings of this study may be useful for formulating India's monetary policy. [ABSTRACT FROM AUTHOR]

This article offers an account of the impact of Indian PM Narendra Modi’s decision in November 2016 to withdraw suddenly all Rs 500 and Rs 1000 notes from circulation in India with the avowed intent of combatting fraud, tax avoidance and other economic problems. The article assesses the impact from the demonetisation in November to the March 2017 Indian regional elections, where wide-scale victories for Modi’s political party, the BJP, appear to have vindicated his reforms. The article provides an analysis of the political background of the period, as well as looking at the economic and societal impact of the changes, including the way in which the behaviour of Indian citizens has been ‘nudged’ with particular regard to use of banking, transactions, social effects, and payment of tax. [ABSTRACT FROM PUBLISHER]

The constant natural interest rate assumption implicit in Taylor type feedback rules to assess the stance of monetary policy could be misleading at times, particularly because of the time-varying nature of the natural interest rate. In the post crisis period, reflecting a complex web of supply side, demand side, regulatory and global factors, natural rates of both advanced and emerging economies have been estimated in the literature to have altered considerably. Using a theoretical framework that combines the essence of Ramsay’s growth model and the New-Keynesian macro-dynamics, and applying the Kalman filter estimation technique, this paper finds that India’s estimated natural real interest rate in Q4 of 2014–2015 lied in a range of 0.6%–3.1%, even though core estimates point to a narrower range of 1.6%–1.8%. These estimates indicate that the real interest rate gap was negative in India for a major part of the last about ten years when CPI inflation was persistently high, implying that monetary policy stance of the Reserve Bank was largely accommodative rather than anti-inflationary. [ABSTRACT FROM AUTHOR]

In the backdrop of adoption of inflation targeting framework, this paper computes optimal monetary policy rules for India conditional upon a small model of the economy covering the period 2000–2014. Weights to policy rules are developed by minimizing alterative inter-temporal loss functions defined over the variance of inflation, output and policy instrument from their respective targets. An optimal policy rule with the ratio of weight on output gap to inflation gap higher than in the standard Taylor rule and a flexible inflation targeting framework turns out to be welfare maximising for India. Lower interest rate smoothing or quicker monetary policy responses than estimated from the past data may be warranted to increase society’s welfare. While a policy rate in the range of 6.25–6.70 appears to be best suited under the macroeconomic situation prevailing during 2015–16, rates lower than 6.25% would lie outside the policy efficiency frontier. [ABSTRACT FROM AUTHOR]

The objective of this study is to follow the development of academic thought by examining various studies that have been undertaken in the area of cashless transactions. With the recent implementation of demonetization in India by the Modi government, this field of study has acquired a renewed urgency. Models built and used by researchers focus on evaluating the costs and benefits that accrue to consumers if they switch to cashless modes of payments from traditional means of transacting with cash, and cash like instruments such as cheques, money orders, etc. Additionally, the contrast between cashless economy progress in developed and developing countries has also been highlighted. [ABSTRACT FROM AUTHOR]

We analyse the impact of monetary policy on the shape of the corporate yield curve and credit spread using a macro-finance approach. Instead of estimating the latent factors from the data on corporate bonds, we use market proxies of level, slope and curvature of the corporate yield curve and credit spread. The results demonstrate that while monetary policy has the dominant impact among macroeconomic variables on the entire term structure, it is particularly strong at the short end and on credit spreads. Changes in credit spreads, in turn, also influence monetary policy. The results are robust to alternative identification schemes and have important policy implications for further development of the corporate bond market, particularly in emerging market economies. [ABSTRACT FROM AUTHOR]

This paper seeks to answer two questions in the context of the Indian economy. First, are all movements in food and energy prices transitory? Second, is there a significant relationship between permanent and transitory shocks to different components of the aggregate price level? Using monthly price data for India and a multivariate correlated unobserved component model based on Morley et al. ((2003). The Review of Economics and Statistics, 85(2): 235) and Bradley et al. (forthcoming), we find that both food and energy prices have significant permanent components. Further, we find a significant feedback effect between permanent components of food prices and manufacturing good prices. These findings suggest that neglecting food and energy prices may render the core inflation measure based solely on manufacturing prices a biased measure of long run inflation. Finally, using a forecasting experiment, we show that a measure of the trend inflation that explicitly accounts for long run price movements in food and energy prices provides a superior forecast of future inflation when compared with alternative measures of the trend inflation. [ABSTRACT FROM AUTHOR]

The purpose of this article is to study the implications of the development of electronic payment systems in the Indian markets. The electronic payment systems that emerged as a technological innovation, to provide customers with an efficient and secure means of payment, can have far-reaching implications for the country's banking system, the role of its central bank, its monetary policy, and its economy. This article identifies the policy issues that arise from the growth of these modern payment systems and discusses the possible policy responses by the Reserve Bank of India to mitigate such impacts. The article concludes that while we cannot slow down the pace of technological innovations, understanding these implications can contribute to finding policy responses and solutions, and building effective safeguards into the system. [ABSTRACT FROM AUTHOR]

Purpose – Inflation and its related uncertainty can impose costs on real economic output in any economy. This paper aims to analyze the relationship between inflation and inflation uncertainty in India. Design/methodology/approach – The methodology uses a generalized autoregressive conditional heteroscedasticity (GARCH) model and Granger Causality test. Findings – Initial estimates show the inflation rate to be a stationary process. The maximum likelihood estimates from the GARCH model reveal strong support for the presence of a positive relationship between the level of inflation and its uncertainty. The Granger causality results indicate a feedback between inflation and uncertainty. Research limitations/implications – The research results have important implication for policy makers and especially the Reserve Bank of India. Practical implications – It provides strong support to the notion of an opportunistic central bank in India. Originality/value – The results of the paper are of relevance not only to the monetary policy makers but also to academicians in India and other developing countries. [ABSTRACT FROM AUTHOR]

Purpose: In a macroeconomic environment with the non-tradable shares reform, financial crisis, tax reform and monetary policy, to examine the dynamic characteristics and factors of the debt maturity structure, this research tends to offer an empirical analysis about Chinese listed companies in different industries. Design/methodology/approach: Learned from Leary (2009), Voutsinas and Werner (2011), this study designs a model of debt maturity structure with an unbalanced panel data set. Consists of 1352 Chinese listed companies with 8124 observations during the period of 2003-2011, the sample passed Hausman test, and the findings support the fixed effects model. Findings: Besides the factors that have been confirmed by previous researches, debt maturity structure is also sensitive to other factors, such as economic expectations, monetary policy, financial restrictions and changes in tax rates. Research limitations/implications: There are still many cases, which affect the debt maturity structure, are worth of further exploring, for instance, the impact of lagged monetary policy, the determinants of short-term debt ratio and the cost of operating. Practical implications: From the macro point of view, research in this area enables the government to introduce more suitable policies that direct and promote the development of the bond market. From the micro point of view, it spurs corporations to choose proper finance structure. Firms can learn from the research to adopt the efficient method and term of financing as well as debt structure. Originality/value: In some way, conclusions of this paper contribute to the study of dynamic characteristics and factors of debt maturity structure in Chinese listed companies. [ABSTRACT FROM AUTHOR]

Abstract: The past two decades have witnessed a worldwide move by emerging markets to adopt explicit or implicit inflation targeting regimes. A notable and often discussed exception to this trend, of course, is China which follows a pegged exchange rate regime supported by capital controls. Another major exception is India. It is not clear how to characterize the monetary regime or identify the nominal monetary anchor in India. Is central bank policy in India following a predictable rule that is heavily influenced by a quasi inflation target? And how has the monetary regime been affected by the gradual process of financial liberalization in India? To address these points, we investigate monetary policy regime change in India using a Markov switching model to estimate a time-varying Taylor-type rule for the Reserve Bank of India. We find that the conduct of monetary policy over the last two decades can be characterized by two regimes, which we term ‘Hawk’ and ‘Dove.’ In the first of these two regimes, the central bank reveals a greater relative (though not absolute) weight on controlling inflation vis-à-vis narrowing the output gap. The central bank however was found to be in the “Dove” regime about half of our sample period, focusing more on the output gap and exchange rate targets to stimulate exports, rather than moderating inflation. India thus seems to be following its own direction in the conduct of monetary policy, seemingly not overly influenced by the emphasis on quasi-inflation targeting seen in many emerging markets. [Copyright &y& Elsevier]

Globalization of the early 1990s is thought to have caused the loss of monetary-policy independence in India. I find that Indias monetary-policy independence is anchored in the exchange-rate regime along with its state of foreign-exchange reserves, and not necessarily in globalization per se. India significantly followed US interest rates even in the absence of globalization in the 1960s when the country faced foreign-exchange constraints and maintained a fixed exchange rate. From the mid 1970s to the early 1990s, India exercised monetary-policy independence under a floating exchange-rate regime. The loss of monetary-policy independence since the early 1990s is not attributable to globalization per se, but mainly to the stable exchange-rate policy of India, which heavily resembles the policy of the 1960s. [ABSTRACT FROM AUTHOR]

This paper empirically tests the Balassa–Samuelson (B-S) productivity bias hypothesis in seven South Asian countries. We use auto regressive distributed lag (ARDL) modelling to develop a dynamic structure of the B-S hypothesis. Using annual data from Penn World Table Version 7.0 and the ‘bounds test’, we found no evidence of the B-S hypothesis in six sampled countries (Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka) and the only exception was Bangladesh. We found that a 1% increase in labour productivity in Bangladesh relative to the US will lead to 2.5% appreciation in the real exchange rate of Bangladesh. The speed of adjustment towards equilibrium was found to be high, with short-run disequilibrium correcting by nearly 25% per annum in Bangladesh. The two endogenously determined structural breaks are found to be negative and statistically significant. These results add new insights to the time-series literature on the B-S hypothesis. [ABSTRACT FROM AUTHOR]

Abstract: The main aim of this study is to investigate India''s demand for international reserve by focusing on the role of national monetary disequilibrium and to present new benchmarks for assessing the adequacy of international reserves. We assessed India''s position in terms of reserve adequacy and found that India is well placed and has sufficient stock of international reserves to meet the minimum adequacy requirements. Also, the results reveal that the central bank is holding substantial excess reserves and the related opportunity cost (1.5% of GDP) appears to be quite considerable. Further, the estimates of reserve demand function suggest that scale of foreign trade, uncertainty and profitability considerations play significant role in determining India''s long-term reserve demand policies. More importantly, validating the monetary approach to balance of payment, our results show that national monetary disequilibrium does play a crucial role in short-run reserve movements. An excess of money demand (supply) induces an inflow (outflow) of international reserves with an elasticity of 0.56 which also implies that Reserve Bank of India responds to correct the domestic money market disequilibrium; and did not just leave it completely on the mercy of reserve inflows. [Copyright &y& Elsevier]

The article explores the mechanisms which spurred the growth in the international reserves of Russia, China, and India during the 2000s. It examines the costs incurred by such countries in intervening into exchange markets to maintain exchange rate regimes as well as highlights the measures they have taken to address the 2008 global financial crisis. How each country deal with the outflows of foreign private capital and decreases in demand for imports in developed countries is discussed.

The purpose of this paper is to re-examine the empirical relationship among alternative monetary aggregates (Ml and M2), output, prices, interest rates and exchange rates in India. The results of a five-variate vector error correction model are indicative of a bi-directional causality between each of the monetary aggregates and prices. Our findings of a feedback relationship make each of the monetary aggregates a poor intermediate target and informational variable. Moreover, contrary to most recent research in this area, the results are supportive of the real business-cycle view and the Keynesian monetary accommodation hypothesis rather than the monetarists' theory of the business cycle. [ABSTRACT FROM AUTHOR]

Summary: This paper examines the role of financial sector policies in determining private investment in the economies of India and Malaysia. The results suggest that significant directed credit programs favoring certain priority sectors tend to discourage private capital formation in both countries. Interest rate controls appear to have a positive impact on private investment, with the effect being more pronounced in Malaysia. While high reserve and liquidity requirements exert a negative influence on private investment in India, the effect is found to be positive in Malaysia. [Copyright &y& Elsevier]

Keynes's work on India before the First World War concentrated on analysis of the gold exchange standard and the stabilization of the rupee external value. Indian monetary arrangements were framed into a plan for foreign investment, implemented by the India Office in London. This policy, which was a typical example of public control over investments, occasioned Keynes's first job as an applied economist. Although neglected by Keynesian scholarship, this learning by doing experience is likely to have played a significant role in the young economist's training and education. [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]

Concerns about relatively high degrees of exchange rate pass-through in a number of emerging economies have contributed to a fear of floating. Despite the obvious policy relevance of this issue there is hardly any existing literature that has examined aggregate CPI pass-through for India, which has been liberalizing its economy since 1991. This paper estimates exchange rate pass-through (ERPT) at the aggregate level into India's CPI for the period 1980Q1 - 2005Q3. We also analyze whether exchange rate pass-through in India has changed over time, particular since 1991, which was the beginning of the country's economic liberalization program. [ABSTRACT FROM AUTHOR]

In the post-reform period, the monetary policy of India has been undergoing various transformations. The emphasis is shifting from conventional instruments of price and quantity control to a more sophisticated route of monetary transmission. Using the recent econometric methodology of cointegrated vector autoregression with generalized restrictions, this study has attempted to examine whether monetary policy in India does work through interest rates in the post-reform period. The long-run relationship and the short-run dynamics suggest an important role for the interest rate. [ABSTRACT FROM AUTHOR]

Purpose - The purpose of this paper is to develop and demonstrate a performance-based allocation model for university libraries in India. Design/methodology/approach - Using economic models with weighted values, a system of allocating funds to university library departments is illustrated. Findings - The paper finds that many university libraries in India struggle to continue their existing operations and services due to financial problems. Careful budgeting and most appropriate use of financial resources is essential to solve the existing financial problems. Originality/value - The model takes into account efficiency and equity considerations, which can assist the library in allocating its budget in a transparent and fair manner. [ABSTRACT FROM AUTHOR]

Given the growing concern, particularly in the EMU area that excessively low inflation threshold may hurt economic growth, the objective of this study is to examine whether a developing countries perspective is different. The empirical analysis is done using the annual data from India for the period of 1971–1998. A specific question that is addressed in this paper is what is the threshold inflation rate for India. The findings clearly suggest that the increase in inflation from any level has negative effect on economic growth and substantial gains can be obtained by focusing the monetary policy towards maintaining price stability. [Copyright &y& Elsevier]

This paper uses Sims-Granger causality to examine the causal relationships between (1) the money stock and income, and (2) the reserve money base and the money stock for India. These relationships are empirically investigated so as to determine the role of money in economic activity and the role and channels of monetary policy in a developing economy. Both the conventional regression method used by Sims and the more recent time-series method developed by Box and Jenkins are utilised in the tests. The results indicate (a) that money does not play a causal role in economic activity while conventional money-demand functions with income as the right-hand side variable are vindicated, and (b) there is weak support for the Central Bank's alleged control over the money stock through control over the reserve money base. The differing nature of the results with respect to the two methods adopted point towards the sensitivity of the Sims-Granger causality test to the type of filtering procedure chosen. [ABSTRACT FROM AUTHOR]

Many of the studies on the unconventional monetary policy spillover effects concentrated primarily on the policy announcements of the U.S. Federal Reserve. Using a time series approach, with dummies in the event study framework, this study estimates the monetary policy spillover effects of the unconventional monetary policy announcements of the central banks of four major economic regions: the United States, the United Kingdom, European Central bank, and Japan on the asset prices in India. In addition to that, this study estimates the asymmetry in the responses to positive and negative surprise announcements. The study reveals that unconventional monetary surprises do not have any significant impact on the asset prices in India in a narrow time window. [ABSTRACT FROM AUTHOR]