Monetary Policy, Stock Market and Inflation Amid Economic Uncertainty: Fresh Evidence from an Emerging Market (the Indian Case). International Review of Finance
Abstract
This study examines the transmission of monetary policy shocks on stock market returns, liquidity, expected inflation, and inflation under varying economic policy uncertainty (EPU) levels in the Indian context. Using a Smooth Transition VAR model, we find that contractionary monetary policy increases illiquidity and decreases returns during the high EPU regime but has minimal effects during the low EPU regime. Additionally, monetary policy effectively curtails expected inflation and inflation in a low EPU regime more than in a high EPU regime. The results emphasize monetary policy transmission via expectation channels over asset pricing channels.
Fiscal and Monetary Policy Regimes: New Evidence from India. Economic Modelling
Abstract
The paper examines how fiscal and monetary policy coordination in India stabilizes macroeconomic fundamentals. We consider two coordinating fiscal and monetary policy regimes, the “Indian Fiscal” (IF) and M regime and then examine the transmission of public expenditure (PE) shock across these regimes. Monetary policy in the IF regime supports fiscal policy in debt stabilization by reducing interest rates. The M regime fiscal policy supports monetary policy in curbing inflation through fiscal consolidation drives. The IF regime is more conducive to the Indian economy as PE stimulus accelerates economic activity without causing high inflationary and high debt scenarios. In contrast, the M regime has a crowding out effect on PE stimulus while worsening the government’s fiscal space. The findings indicate that in the Indian case, the monetary authority should maintain its accommodative stance on PE stimulus.
Public expenditure multiplier across business cycle phases in an emerging economy: new empirical evidence and dimension. Empirical Economics
Abstract
In this paper, we study the transmission and effectiveness of the public expenditure shock across business cycle phases in the Indian economy. The empirical results suggest that the deflationary impact of the public expenditure shock and the subsequent accommodative response of interest rates exhibit a countercyclical public expenditure multiplier during the contraction period. Moreover, the large and significant negative impact of the public expenditure shock on inflation and the interest rate has resulted in a larger public expenditure multiplier during a supply-side recession than a demand-side recession. Based on empirical evidence, we suggest that policymakers consider the presence of nonlinearities in the transmission and effectiveness of the public expenditure shock while taking fiscal policy measures.
Uncovering time variation in public expenditure multipliers: new evidence. Indian Economic Review
Abstract
The paper provides fresh evidence on the dynamics of public expenditure multipliers and the factors explaining them. The findings of this paper may facilitate the policymakers in effectively framing fiscal policy to expedite economic stabilisation and uplift economic growth. The paper proceeds with computing the time-varying public expenditure multipliers by employing the time-varying parameter–vector autoregressive (TVP–VAR) model on the Indian quarterly data set between 1997Q1 and 2019Q4. It then examines the role of structural factors in explaining the time variation in public expenditure multipliers. The empirical investigation reveals the heterogeneity in time-varying transmission and effectiveness of revenue capital and total expenditure shocks. The study further finds the adverse effects of fiscal instability and trade openness on public expenditure multipliers. The financial development and propensity to consume augment the public expenditure multiplier values. The findings also provide insights into the periodic impact of expenditure multipliers, which is relevant for policymakers.
Macroeconomic impact of the supply shock during COVID-19 pandemic in India. Journal of Economic Studies
Abstract
The study examines the impact of the supply shock on the Indian macroeconomic variables during the COVID-19 period. Time-Varying Factor Augmented Vector Auto Regressive Model (TVP-FAVAR) has been employed for the econometric analysis. We found that, due to the supply shock, retail food inflation soared during COVID-19. Production levels reported by IIP fell to abysmally low levels in the post-COVID times when the economy stalled. The liquidity stimulus provided by the central bank led to the negative response of policy rates to the supply shocks during the COVID-19 times.
On the Dynamics of Time-varying Fiscal Multipliers. Economic and Political Weekly, 57(44-45), 30-33.
Abstract
The dynamic transmission and the effectiveness of the Indian public expenditure shock are analysed. The article uses a time-varying parameter vector autoregressive model with stochastic volatility to compute the time-varying Indian public expenditure multiplier and employ Bayesian regression consequently to examine its determinants.
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