Past Issue : Volume-6 (2015-2016)


The Global Recession and Emerging Economies

A large body of literature has emerged on various ways in which the emerging economies were affected by the global recession that originated in USA and Europe. This paper reviews a section of this literature and tries to assess the relative importance of the trade and finance channels through which the global crisis affected emerging economies. It also briefly examines the appropriate policy response in emerging economies under such crisis situations.

Ananya Ghosh Dastidar

Cereal and Fuel Price Interactions: Econometric Evidence from India

What's fuelling the food prices? While several reasons abound, the role of fuel prices in fuelling food prices cannot be negated. Evidence suggests that there is an increasing co-movement between world oil prices and agricultural commodity prices, with rising demand for bio-fuels also impacting the relationship. This has reinstated the interest in determining the price transmission from world crude oil prices to that of agricultural commodities. In this context, the present study analyzes the fuel-food price relationship in the Indian context. In addition to food and fuel prices, both domestic and international, two macro-economic variables, viz., inflation and real effective exchange rates have been analyzed. Using monthly time series data over the period April 1994 to December 2014, the long-and short term interactions between the variables have been estimated using Toda-Yamamoto causality and Johansen cointegration tests. Additionally, using VAR estimates, the impulse response functions have been generated and analyzed. A specific highlight of the present paper is the analysis based on forecast error variance decomposition. Analysis based on impulse response functions indicates that international cereals price, and fuel prices-both domestic and international, in general, have a positive impact on domestic cereal prices. Based on variance decomposition of domestic cereal prices, the findings indicate that shocks to fuel prices-both domestic and international, have a negligible impact on domestic food prices over ten months period. In view of Indias mandate on bio-fuel policy, as also the recent deregulation of fuel prices, the associated impact on food prices cannot be overlooked. The paper concludes with a broad policy perspective.

Aparna Sajeev
Harpreet Kaur
Simrit Kaur

Monetary Policy Behaviour in India

The monetary policy of any country strives to achieve a balance between its goals of price stability and higher growth by using various monetary policy tools. In light of this, the aim of the study is to examine the monetary policy of the Reserve Bank of India for achieving these objectives using interest rate as a tool, in terms of Taylor equation for the period 1996 Q1 to 2013 Q3. The Autoregressive Distributed Lag bounds testing approach to cointegration is used for studying the monetary policy behavior. The paper also broadens the Taylor equation to incorporate the fiscal and open economy parameters as factors affecting monetary policy behaviour. The result suggests that the growth criterion is the most significant factor affecting the interest rate policy of the bank. It also finds inflation control and open economy volatility as important factors in the policy decision making but with lesser weightage. The fiscal parameter turns out to be insignificant. The findings suggest that the monetary policy decision making is growth enhancing.

Kajleen Kaur

Interlinkage between Property Price and Credit: Empirical Evidence from India

The paper investigates the two-way character of the link between asset prices (especially housing prices) and credit in India by examining quarterly data for fifteen Indian cities for a period of six years from 2007 Q4 to 2013 Q4. There may be many channels through which real estate and credit markets interact and causality may go in both directions, asset prices influencing credit through expectations formation and, credit in turn, impacting asset prices. Time series econometric tools of unit root, cointegration and causality tests are used to test for existence of long run relation and direction of causality for each city. The contribution of this paper is to provide evidence on causality between credit and housing price with respect to India and discuss the policy implications.

Priti Mendiratta

Economic Crisis and Regional Integration: Evidence from ASEAN

In this paper, the objective is to evaluate the role of Regional Trade Agreements (RTAs) among developing countries in the context of economic crisis. This paper attempts to examine whether RTAs actually lead to faster regional spread of crisis (within RTA or in non-member country) or whether such arrangements may act as safeguards for members against such crisis. For this purpose, we study the response of the regional integration in the Association of South East Asian Nations (ASEAN) region to the crisis inside and outside the region. We develop an analytical framework that analyses the possible channels of response of regional integration to the occurrence of crisis inside the region or outside the region. To capture the possibility of contagion effect of a crisis inside or outside the region, we compute unconditional probability and conditional probability of three types of economic crisis- currency, stock and banking crisis- in the major ASEAN economies. To capture the possibility of safeguard role of regional integration in an event of economic crisis, we compute the probability of episode of crisis (inside or outside the ASEAN region) being followed by positive growth rate in intra regional trades. We obtain non-zero probabilities in both the cases - contagion and safeguard-indicating possibility of both the responses to a crisis inside or outside a region and the final outcome depends on the net impact of both the effects. However, one important policy implication to be drawn from this analysis is to strengthen the regional integration and substitute it for trade links with external trading partners to curb the effects of an economic crisis in an outside country, thereby strengthening the insulation effects of regional integration.

Prerna Prabhakar

Emerging Opportunities of Medical Tourism in India

Medical Tourism is the concept of travelling to a particular destination to avail the opportunity of the world-class healthcare services offered by experienced Healthcare professionals at the technologically advanced medical facilities with complete privacy and within affordable costs. The Indian Government, respective State Tourism Boards, travel agents, tour operators, hotels and private / corporate sector healthcare providers / hospitals are exploring the medical tourism industry for tremendous opportunities. They are seeking to capitalize on the opportunities by combining the country's popular leisure tourism with medical tourism. Some of the factors that make India as one of the favorable destinations for medical tourism include low medical cost which is approximately one-tenth of the costs in the western countries. The long waiting period to avail the medical facilities by foreign patients in most developing / developed countries is tremendously reduced by availing similar facilities in the Indian hospitals. Given the scenario, in this paper one addresses the question whether India can be the leader in providing Medical Tourism in the near future.

Rajesh Bhalla

Trade in Services and Income Inequality in Developing Economies

With technological revolution, trade in services has now gained a lot of importance in the trade literature. This paper discusses the impact of trade in services on income inequality, focusing in particular on the channels through which openness to trade in services can have an impact on income inequality in developing economies. The paper explores the relationship between trade in services and income inequality in developing economies with an emphasis on India which is by and large a service driven economy. It provides some insights on the question - why it is important to examine the impact of trade in services on income inequality separately from that of trade in goods in developing economies and how this impact is different in the two cases.

Rashmi Ahuja

Macroeconomic Determinants of Stock Returns

Knowledge of sensitivity of stock returns is important for investment, trade and financial issues. It provides insights on stock market dynamics that are useful for policy makers, investors and traders. Using monthly data for the period January 2007 to April 2012, this study examines the stock returns sensitivity to four key macroeconomic variables namely industrial production, exports, exchange rate and interest rate. Index of industrial production and interest rate are significantly related to stock prices in the long run. It implies that growth in the real sector leads to the better returns in the financial sector as well. One possible explanation could be that well-performing real sector builds strong sentiments or expectations in the economy which drive stock returns. It also indicates that stock returns are driven by domestic industrial production rather than exports. The significant interest rate implies that monetary policy measures are crucial in determining the returns in the stock market in India.

Sonal Dua

Abstracts of Doctoral Dissertations
An Empirical Study of Asset Pricing Anomalies

Srividya Subramaniam

Book Review
Fault Lines - How Hidden Fractures still Threaten the World Economy

Raghuram G. Rajan