Research Statement
Vighneswara Swamy
Professor of Economics, IBS-Hyderabad, India
September 2019
My research analyzes the interaction of finance and macroeconomics and their interface with decision theory, industrial organization, and public finance to provide useful policy suggestions. My work sometimes crosses disciplinary and field boundaries to examine questions of economic development. While my research falls primarily within the empirical macro-finance, I also develop models of dynamic relationships of intertemporal allocation familiar to macroeconomists. What strengthens my research agenda is my emphasis on creating and using large new sources of data to provide answers to important questions that are inspired by economic theory.
My research contribution has been visible in, and well-received by, the academic community. My studies have been published in top finance and economics journals, have been often and increasingly cited, are discussed in many advanced Ph.D. courses, and are frequently invited to major, competitive conferences, and symposiums. I was awarded the Macro Research Award 2015-16 for my research: A Study on the Effectiveness of Transmission of Monetary Policy Rates in India. For my work on “Decomposing the Dynamics of Intra-Regional Investments in South Asia”, I was awarded the SANEI Regional Research Award for South Asia – 2015. I was honored with the senior fellow position at the Institute of Economic Growth (IEG) for my work on the political economy of sovereign debt. IEG is one of the top think tank research institutions in India and is ranked 26th in the world in the area of international economics. I was selected for the Postdoctoral Fellowship Award funded by the University Grants Commission for the period 2012-14 in the area of financial economics. My research work on the topic: Eurozone Sovereign Debt Crisis: Macroeconomic Implications and Policy Options for India was awarded the prestigious SANEI Research Award – 2013. My research study on Basel III: Implications for Indian Banking was recognized with the award of the IIBF Macro Research Award – 2012. My study on the topic: Gender dimension in Financial Inclusion: A study on the impact of women's participation in the economic upliftment of the poor, was recognized with the Sir Ratan Tata Research Fellowship Award – 2012. I was invited to be on the RBI Panel – RBI Policy Challenge 2019.
The main contribution of my research lies in providing novel evidence in areas such as (1) analyzing financial regulation to estimate the causality and direction of impact, (2) studying the dynamics of financial development and economic growth, (3) exploring the effects of financial Inclusion on inclusive growth, (4) microfinance and women financing – how do these impact the economic lives of the poor and the broader economy, (5) evaluating the role of banks in financial intermediation, (6) exploring the behavior of financial markets, (7) investigating the dynamics of international finance and trade, (8) exploring the dynamic relationships and debt intolerance between government debt and economic growth from the public finance perspective, and (9) wealth effects and macroeconomic dynamics.
1. Financial Regulation:
The global financial crisis has led us to a wide-ranging discussion about the aptitude of macroeconomic and financial sector policies in mitigating the costs stemming from such episodes. This has caused extensive damage to the global economy by reducing real activity, trade, and services to an unprecedented level since World War II. In my study (Estimating Loss-in-Output as a Cost of a Financial Crisis. World Economics Journal, 2019, 20 (2), 69-94.), I provide a quantitative exploration of modeling the loss-in-output as a cost of the financial crisis an emerging economy, i.e. India. I estimated that in the Indian context, the financial crisis can cause a cost to the economy at the levels of 47.97%, 49.29%, 51.85%, 54.31%, 56.66% and 58.92% for discounting factor δ values of 0.025, 0.03, 0.04, 0.05, 0.06, 0.07 respectively. The estimation of loss-in-output per crisis in terms of GDP aids in the simpler estimation of the impact of the financial crises. The major policy implication of the study is that the policymakers and regulators are required to be more prudent and alert in sensing the early indicators of a financial crisis and act swiftly in curtailing the impact of an impending crisis in order to minimize the loss-in-output.
Estimating the Basel-III capital requirement for Indian banks was necessary as India fully accepted the Basel III accord for in to-to implementation. In my study (Estimating the Basel III Capital Requirement for Indian Banks, Applied Economics Quarterly, 2018, 64 (3), 253-277.), I estimate the additional capital requirements of Indian banks based on their ownership patterns. My findings suggest that with an assumed growth of RWAs at 10%, banks in India would require an additional minimum tier-1 capital of INR 2.51 trillion. With an assumed RWAs growth at 12% and 15%, the requirement would be in the order of INR 3.36 trillion and INR 4.74 trillion respectively.
The Indian financial sector faces challenges in meeting some of the Basel III norms, more particular the capital requirements. In my study (Basel III capital regulations and bank profitability. Review of Financial Economics, 2018, 36 (4), 307-320.), I provide answers to questions like how much would be an increase in interest income of the banks and how can these interrelations be mapped approximately for estimation? Can the individual banks be able to forecast the impact of increased capital requirements on their interest income? Is the increase in interest income significantly different for different groups of banks based on their ownership patterns? What are the lessons for the policymakers and regulators from this impact? The findings reveal that in the case of scheduled commercial banks, assuming that RWAs are unchanged, for 1-percentage point increase in capital ratio, interest income would rise by 17 percentage points and would go up to an extent of 62 percentage points for six-percentage-point increase assuming that the risk-weighted assets are unchanged. It also provides the estimations for different groups of banks and the scenarios of changes in the risk-weighted assets, and changes in the capital ratios.
The global financial crisis triggered a healthy debate on approaches to regulation and supervision among regulators, policymakers and academics, leading to multiple proposals for further reforms. In this background, in my study (Analyzing the topography of financial regulation. Journal of Financial Economic Policy, 2017, 9 (4), 475-515. Emerald Publishing.), I asked three important questions: First, what was the topography of the regulatory and supervisory frameworks of the countries that were directly hit by the global financial crisis? Second, how did they differ from those of the BRICS countries? Third, what lessons can be drawn for strengthening the regulatory structures of these countries? I employed a unique approach to assessing the bank regulation and supervision styles around the world and their impact on banking system profitability using a robust database. In this study, I provide not only a general assessment but also for BRICS and emerging economies. The findings show that the crisis-countries had weaker regulatory and supervisory frameworks than those in emerging countries during the crisis period. BRICS countries as a distinct block have demonstrated uniqueness in their regulatory/supervisory styles that are similar neither to those in the crisis countries nor to those in the non-crisis countries.
2. Financial Development:
In the backdrop of the on-going debate on the finance-growth nexus, I contribute to the literature from an empirical perspective in the following ways, as our exploratory research seeks to know: (i) Is there a threshold for financial development in the advanced economies? (ii) Is the relationship between financial development and economic growth weak for financial development levels below the threshold? (iii) Is there a declining negative relationship between financial development and growth as the threshold levels are crossed? (iv) How critical would the impact of financial development on growth be beyond its threshold? In addition, we offer to provide evidence for the presence of a causal link going from financial development to economic growth with the use of the ‘instrumental variables approach’. In our study (The dynamics of finance-growth nexus in advanced economies, International Review of Economics and Finance, 2019, 64 (1), 122–46.). The findings show that there exists a threshold effect of the finance-growth relationship estimated at 142 percent of GDP. We find that surpassing the threshold would cost the countries instead of furthering economic growth as too much finance is harmful. Based on the panel Granger causality test results, we argue that financial development should be associated with optimal growth performance. Our findings for the advanced economies provide useful inferences to the emerging and developing economies in designing their financial development strategies.
The relationship between financial development and economic growth is vital and intriguing at the same time. Our exploratory research seeks to know: (a) Is there a declining negative relationship between financial development and growth, and (b) is there a mediated moderation effect in explaining causal link going from financial development to economic growth. In our study (An Alternate approach in exploring the causal link between financial development and economic growth - Evidence from advanced economies, International Journal of Finance & Economics, 2018, 23 (1), 519-549.), we noticed that the moderated mediation effect of inflation, real interest rate, trade openness, and population dependency on the financial development and economic growth relationship. It was revealed that the positive association of financial development with economic growth is moderated by the negative impact of inflation, interest rate, and population dependency. On the other hand, trade openness has a positive mediation effect on financial development and economic growth association. Our results are of potential significance to the policymakers in terms of optimizing the financial deepening that necessitates being undertaken to ensure that the maximum possible gain for the economy can be achieved through the financial sector.
3. Financial Inclusion:
My work in the area of financial inclusion encompasses topics like financial inclusion in India, Bank-based financial intermediation for financial inclusion and inclusive growth, Reforms in institutional finance for inclusive growth in India, Financial inclusion and the resilience of poor households, etc. In one my papers (Financial Inclusion, Gender Dimension, and Economic Impact on Poor Households, World Development, 2014, 56, (April), 1–15.), I examine the question: “In the context of gender dimension what is the evidence of the impact of the financial inclusion programs on poor households represented by women relative to that represented by men?” By constructing a good counterfactual and comparison group, we employ the difference-in-difference estimator approach with panel least squares and generalized methods of moments using the standard errors for a robust analysis. I find that income growth (CAGR) net of inflation effect was 8.40% for women as against 3.97% for men, indicating that the gender of participating poor undoubtedly affects the outcomes of these programs.
4. Banks and financial intermediation:
My studies in this domain cover some of the major topics like Determinants of bank asset quality and profitability, testing the interrelatedness of banking stability measures, Eurozone debt crisis: Implications for the Indian banking sector. Bank lending behavior during the global financial crisis, Banking system resilience and financial stability, Impact of macroeconomic and endogenous factors on nonperforming bank assets, Financial instability, uncertainty, and bank lending behavior, Financial intermediaries and economic development: evidence on transaction costs of borrowing by the poor, Analyzing the agricultural value chain financing.
In one of studies (Testing the Interrelatedness of Banking Stability Measures, Journal of Financial Economic Policy, 2014, 6 (1), 25-45), I investigate the inter-relatedness and the dynamics of banking stability measures and offers answers to some of the related issues such as does financial stability require the soundness of banking institutions, the stability of markets, the absence of turbulence and low volatility? and to what extent the soundness of the banking sector in the case of emerging economies can help financial system stability. A significant contribution of this study is in establishing that liquidity in the banking-dominated financial system is reciprocally related with asset quality, capital adequacy, and profitability of the banking system and ineffectively forecasting banking stability employing micro panel recursive VAR model
5. Microfinance and Women Financing:
My work in the area of microfinance encompasses topics such as the macroeconomic significance of transaction costs in microfinance intermediation, does microfinance impact on food security and living standard of the poor? and Women Financing and Household Economics, etc.
6. Financial Markets:
I have contributed in several important issues in the area of financial markets like Governance structure and performance of private family firms, Investor attention and Google search volume index: Evidence from an emerging market using quantile regression analysis, Investor attention using the Google search volume index - impact on stock returns, The contagion effects of European Union macroeconomic instability on emerging markets – evidence from India, and Inter-linkages between commodity markets and capital markets during the global financial crisis.
In our study (Investor attention and Google search volume index: Evidence from an emerging market using quantile regression analysis, Research in International Business and Finance, 2019, 50 (1), 1-17.), we investigate whether the investor attention measured by the Google search volume index (GSVI) is effective in forecasting stock returns. We use a more recent data set that covers S&P BSE 500 companies listed on the Indian stock exchange for 2012–2017 and employs the quantile regression approach because it alleviates the statistical problems arising from biased distribution data. The results suggest that a higher GSVI predicts positive and significant returns in the subsequent first and second weeks. Higher quantiles of GSVI experience higher excess returns. The panel cointegration test results support the findings regarding the cointegration of the GSVI and stock returns. Our empirical evidence shows that our model is robust when using a trading strategy based on the Fama-French four-factor model. Thus, the model with GSVI acts as a better predictor of both the direction and magnitude of the excess returns than the model without GSVI.
7. International Finance and Trade:
My published work in the area of international trade covers topics like foreign direct investment inflows in the context of Trilemma in India and drivers of capital flows. What drives the capital flows into the countries – has been an important question that lies at the center of a long-standing debate in international economic policy and research. In our study (What drives the capital flows into BRICS economies? The World Economy, 2017, 41 (2), 519-549), using a balanced panel data for BRICS countries over the period 2001–2015, we draw five important conclusions from the empirical analysis. First, we find that market size is a significant driver of capital flows. Indeed, we notice bidirectional causality among the two. Second, economic freedom in the host countries is observed to be an important driver of the long-run growth of capital flows in these countries. This underscores the view that policies promoting better freedom of economic activities are very much necessary as more freedom is likely to deliver enhanced benefits. Third, the ease of doing business ranking has a significant impact on the capital flows in BRICS countries. Thus, the governments need to reform the regulations governing business activities by easing the process of business startups, cutting down government bureaucracy and other rent-seeking activities. Fourth, the sovereign credit ratings are found significant and impact positively on the capital flows. This calls for enhanced fiscal prudence on the part of governments in order to prop up their sovereign credit ratings. Fifth, infrastructure in the host countries is found to have a positive impact on capital drivers.
8. Public Finance:
In the area of public finance, most of my work is focused on government debt and its influence on economic growth. The effects of government debt and economic growth, once a subject of interest to very few macroeconomists, has suddenly become of immense importance to many researchers in the backdrop of the Eurozone sovereign debt crisis and Reinhart & Rogoff’s related research. In a recent study (Debt, economic growth, and data adequacy. World Economics, 2018, 19 (2), 41-84.), I investigate the government debt-growth relationship and contributes to the literature in the following ways: First, I extend the horizon of analysis to several country groupings and make the study inclusive of economic, political, and regional diversities based on a sizeable dataset. Second, I provide evidence for the presence of a causal link going from debt to growth with the use of the ‘instrumental variables approach’, unlike the RR approach. Third, I overcome the issues related to data adequacy, coverage of countries, heterogeneity, endogeneity, and non-linearities by conducting a battery of robustness tests. I find that an increase in the debt-to-GDP ratio is associated with a reduction in average growth. This study establishes the nonlinear relationship between debt and growth.
9. Wealth Effects:
Wealth effects research has fascinated me from the macroeconomic perspectives. My work covers topics such as Wealth effects and macroeconomic dynamics, housing wealth effects on household consumption, and wealth effects on consumption – evidence from the Indian economy, etc. In a recent paper (Wealth effects and macroeconomic dynamics, Economics Bulletin, 2019, 39 (3), 1-20.), I analyze the macroeconomic dynamics of wealth effects in India and examines the nexus between the changes in housing wealth, financial wealth, and consumer spending. I find a statistically significant and large effect of housing wealth on household consumption. The results show that (i) wealth effects are statistically significant and comparatively substantial in magnitude (ii) housing wealth effects tend to be greater while stock market wealth effects are considerable (iii) private consumption responses to the shocks to housing market wealth are relatively stronger than to the shocks in stock market wealth. There is a bidirectional causality running from private consumption to the two wealth forms and vice versa. Overall, the private consumption expenditure response to the changes in different wealth forms is observed to be substantial and significant.
Future Research:
I propose to undertake research in the areas of financial and commodity markets, energy and finance, monetary economics, and public finance themes.
Notable Papers:
Some notable papers are listed here below theme-wise:
1. Financial Regulation:
9. Swamy Vighneswara (2019). Estimating Loss-in-Output as a Cost of a Financial Crisis.
World Economics Journal, 20 (2), 69-94. April-June 2019.
8. Swamy Vighneswara (2018). Estimating the Basel III Capital Requirement for Indian
Banks, Applied Economics Quarterly, 64 (3), 253-277.
7. Swamy Vighneswara (2018). Basel III capital regulations and bank profitability. Review
of Financial Economics, 36 (4), 307-320. Early View, John Wiley & Sons.
6. Swamy Vighneswara (2018). Using the World Bank’s Bank Data to Assess Changes in
Financial Regulation and Supervision since the Global Financial Crisis. World Economics, 19 (3), 151-181.
5. Swamy Vighneswara, (2018). Modeling the Impact of Basel III Regulations on Loan Demand.
Journal of Financial Economic policy, 10 (1), 136-164. Emerald Publishing.
4. Swamy Vighneswara, (2017). Analyzing the topography of financial regulation. Journal of
Financial Economic Policy, 9 (4), 475-515. Emerald Publishing.
3. Swamy Vighneswara, (2017). Using Indian Data to Measure the Impact of the Eurozone Debt
Crisis through the Financial Channel. World Economics, 18 (4), 21-58.
2. Swamy Vighneswara, (2016). Modeling the Impact of New Capital Regulations on Bank
Profitability. The Indian Economic Journal, Special Issue, December, Pages 1–17, Indian Economic Association.
1. Swamy Vighneswara, (2015). Capital and liquidity requirements: impact on bank lending
spreads. International Journal of Banking, Accounting, and Finance, 6 (1), 53-72. Inderscience Publishers, Geneva, Switzerland.
2. Financial Development:
5. Swamy Vighneswara, and Dharani M, (2019). The dynamics of finance-growth nexus in
advanced economies, International Review of Economics and Finance 64 (1) 122–46.
https://doi.org/10.1016/j.iref.2019.06.001 Listed in ABDC – A and in Scopus
4. Swamy Vighneswara, and Dharani M, (2018). An Alternate approach in exploring the causal
link between financial development and economic growth - Evidence from advanced economies. International Journal of Finance & Economics, 23 (1), 519-549. John Wiley & Sons. Listed in ABDC – B and Scopus. https://doi.org/10.1002/ijfe.1604
3. Swamy Vighneswara, and Dharani M, (2019). The tipping point of financial development? –
evidence from OECD countries. International Economics and Economic Policy, Early
cite Available at https://doi.org/10.1007/s10368-018-0420-z Listed in ABDC–B and Scopus.
2. Swamy Vighneswara, (2010). Financial Development and Inclusive Growth: Impact of
Government Intervention in Prioritised Credit. Zagreb International Review of Economics & Business, 13(2): 53-70. Listed in ABDC – C.
1. Swamy Vighneswara, (2011). Does Government Intervention in Credit Deployment Cause
Inclusive Growth? –Evidence from Indian Banking, International Journal of Business Insights and Transformation 4(1), 35-45. Listed in ABDC – C.
3. Financial Inclusion:
5. Swamy Vighneswara (2019). Financial inclusion and the resilience of poor households.
Journal of Developing Areas 53 (4), 179-192. DOI:10.1353/jda.2018.0079
Available at https://muse.jhu.edu/article/718418/pdf Listed in ABDC – B and Scopus.
4. Swamy Vighneswara, (2017). Reforms in Institutional Finance for Inclusive Growth in India.
Institutions and Economies, Volume 10, Issue 1, pp. 53-86. Listed in Scopus. https://ijie.um.edu.my/index.php/ijie/article/view/9553/6988
3. Swamy Vighneswara, (2014). Financial Inclusion, Gender Dimension, and Economic Impact
on Poor Households. World Development 56, (April), 1–15. Published by Elsevier. Listed in ABDC – A and Scopus.
2. Swamy Vighneswara, (2010). Bank-Based Financial Intermediation for Financial Inclusion
and Inclusive Growth. Banks and Bank Systems, 1(4), 63-73. Listed in ABDC – C.
1. Swamy Vighneswara, (2011). Financial Inclusion in India: An Evaluation of the Coverage,
Progress and Trends, The IUP Journal of Financial Economics, 9 (2), 7-26.
4. Banks and financial intermediation:
10. Swamy Vighneswara, (2017). Determinants of Bank Asset Quality and Profitability: An
Empirical Assessment. Applied Economics Quarterly, 63 (1), 97-135. Listed in ABDC – B. https://doi.org/10.3790/aeq.63.1.97
9. Swamy Vighneswara, (2014). Testing the Interrelatedness of Banking Stability Measures.
Journal of Financial Economic Policy, 6 (1), 25-45. Emerald Publishing. Listed in ABDC – B and Scopus.
8. Swamy Vighneswara, (2013). Eurozone debt crisis: Implications for the Indian banking sector.
International Finance Review, 14, 341-362. Emerald Publishing. Listed in Scopus.
7. Swamy Vighneswara and Sreejesh S. (2014). Bank Lending Behaviour during the Global
Financial Crisis, Applied Economics Quarterly, 59 (4), 311–329. Listed in ABDC – B.
6. Swamy Vighneswara, (2013). Banking System Resilience and Financial Stability – An Evidence
from Indian Banking, Journal of International Business and Economy (Spring) 14(1), 87-117. Listed in ABDC – C.
5. Swamy Vighneswara, (2012). Impact of Macroeconomic and Endogenous Factors on Non
Performing Bank Assets, International Journal of Banking and Finance, 9 (1), 27-47. Listed in ABDC – C.
4. Swamy Vighneswara and Sreejesh S. (2012). Financial instability uncertainty and bank lending
behavior. International Journal of Banking and Finance, 9(4), 74-95. Listed in
ABDC – C.
3. Swamy Vighneswara and Tulasimala B.K, (2011). Financial Intermediaries and Economic
Development: Evidence on Transaction Costs of Borrowing by the Poor, International Journal of Banking and Finance, 8(3), 54-72. Listed in ABDC – C.
2. Swamy Vighneswara and Dharani M. (2016). Analyzing the agricultural value chain financing:
approaches and tools in India. Agricultural Finance Review, 76 (2), 211–232. Emerald
Publishing. Listed in ABDC–B and Scopus. https://doi.org/10.1108/AFR-11-2015-0051
1. Swamy Vighneswara and Vijayalakshmi S. (2012). Fair value accounting in banking – issues in
convergence to IFRS, African Journal of Accounting, Auditing, and Finance, 1(3), 270-280. Listed in ABDC – C.
5. Microfinance and Women Financing:
3. Swamy Vighneswara (2019). Macroeconomic significance of transaction costs in
microfinance intermediation, Management Decision, Early cite https://doi.org/10.1108/MD-01-2018-0073 Listed in ABDC – B and Scopus.
2. Swamy Vighneswara and Tulasimala BK. (2013). Does microfinance impact on food security
and living standard of the poor? Journal of Business and Economic Management, 1(5), 69-81. Academia Publishing, U.K.
1. Swamy Vighneswara and Tulasimala BK. (2013). Women Financing and Household Economics.
Economics, Management, and Financial Markets, 8(3), 19–36. Listed in ABDC–C.
6. Financial Markets:
5. Mukherjee, T., Swami, V. & Wang, W. (2019). Governance structure and performance of
private family firms. Journal of Economics and Finance. Early Cite: https://doi.org/10.1007/s12197-018-9466-6 Listed in ABDC – B and Scopus.
4. Swamy Vighneswara, Dharani, M., and Fumiko Takeda (2019). Investor attention and Google
search volume index: Evidence from an emerging market using quantile regression analysis. Research in International Business and Finance, 50 (1), 1-17.
https://doi.org/10.1016/j.ribaf.2019.04.010 Listed in ABDC – B and in Scopus.
3. Swamy Vighneswara, and Dharani M. (2019). Investor attention using the Google Search
Volume Index - Impact on Stock Returns. Review of Behavioral Finance, 11 (1), 55-69. https://doi.org/10.1108/RBF-04-2018-0033 Listed in ABDC – B and Scopus
2. Swamy Vighneswara (2019). The Contagion Effects of European Union Macroeconomic
Instability on Emerging Markets – Evidence from India. Journal of International
Business and Economy, 19 (2), 74-104. Listed in ABDC - C.
1. Swamy Vighneswara and Sreejesh S. (2011). Inter-Linkages between Commodity Markets and
Capital Markets during the Global Financial Crisis. Economics, Management, and Financial Markets, 6(3), 66–85. Listed in ABDC – C.
7. International Finance and Trade:
2. Swamy Vighneswara (2018). Foreign Direct Investment Inflows in the context of
Trilemma in India. Indian Economic Journal, Special Issue, Dec 2018, Article 6, pp. 56-58. Indian Economic Association. Listed in ABDC - B.
1. Swamy Vighneswara, and Vijayakumar N (2017). What drives the capital flows into BRICS
economies? The World Economy, 41 (2), 519-549. John Wiley & Sons. Listed in ABDC – A and Scopus. https://doi.org/10.1111/twec.12606
8. Public Finance:
1. Swamy Vighneswara (2018). Debt, Economic growth, and Data adequacy. World Economics,
19 (2), 41-84. Listed in ABDC – B. https://www.worldeconomics.com/Journal/JournalArchive.aspx
9. Wealth Effects:
2. Swamy Vighneswara (2019). Wealth Effects and Macroeconomic Dynamics, Economics
Bulletin, 39 (3), 1-20. July. Listed in ABDC – C, and Scopus.
http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I3-P165.pdf
1. Swamy Vighneswara, (2017). Housing wealth effects on Household consumption. Indian
Economic Journal, Special Issue, Dec 2017, Article 15, pp. 198-183. Indian Economic Association. Listed in ABDC - B.