The Impact of Monetary Policy on Foreign Trade and Investment: A Bayesian VAR Approach.

This paper investigates the impact of monetary policy stance on trade and foreign investment in the pharmaceutical sector in India. It employs the Bayesian Vector Autoregression (BVAR) approach to construct a model and then studies the said impact by the Impulse Response Function (IRF) analysis. In a Bayesian procedure, the parameters are treated as random variables and their posterior distribution is estimated via the imposition of prior beliefs on their distribution, which makes the analysis more robust when combined with Vector Autoregression (VAR). It has been found that both FDI inflows and exports are impacted by inflation and interest rate changes; however, inflationary pressure has a pronounced impact. On the other hand, GDP growth does not seem to substantially impact both FDI inflows and exports as deduced from the Bayesian VAR with Stochastic Volatility and Time Varying Parameters (BVARSV-TVP) model. These findings have been deduced alongside a benchmark VAR model. [ABSTRACT FROM AUTHOR]