vswamynomics

EGROW Webinar on Budget 2021-22 Expectations 25.12.2020 5.30 pm  Suggestions in Brief by:   Dr. Vighneswara Swamy, Professor of Economics, IBS-Hyderabad     Macroeconomic Overview:   The GDP during the April-June quarter (Q1) had contracted by 23.9 percent, the worst contraction in the history of the Indian economy, owing to a strict nationwide lockdown due to the novel coronavirus (COVID-19) during the bulk of the quarter. India’s GDP contracted 7.5% in Q2, to enter a technical recession. Interestingly, the RBI had ‘nowcast’ that GDP for the July-September quarter was set for a contraction of 8.6 percent. As per the government data, the gross value added (GVA) at basic prices at constant (2011-12) during the September quarter shrunk 7.0 percent. The GVA at basic prices at current prices slipped 4.2 percent in Q2 2020-21. According to the MoSPI data, the manufacturing industry showed a 0.6 percent rise in the September quarter, after crashing by a whopping 3...

Key points • This study empirically examines the interaction between monetary and fiscal policy by using Vector Auto Regressions (VAR) and a Vector Error Correction Model (VECM) and explores the need for coordination. • The Stackelberg interaction model with government leadership to know the strategic interaction between monetary and fiscal policy is analyzed. • The findings show that an unexpected increase in the monetary policy effect: (i) has a contractionary impact on the economic growth; (ii) leads to a gradual decline in the inflation; (iii) tightens the liquidity conditions; and (iv) rise in the bond yields. On the other hand, an unexpected increase in the fiscal policy effect: (i) has a positive effect on GDP growth; (ii) has an initial decline, but a gradual rise in the inflation levels; and (iii) leads to falling bond yields. • Monetary policy is found to be more responsive to fiscal policy effects. The results imply that there is a greater need for effective coordinat...

Macroeconomic transmission of Eurozone shocks to India—A mean-adjusted Bayesian VAR approach Author: Vighneswara Swamy  This paper analyzes the macroeconomic transmission of Eurozone shocks to an emerging economy — India using the mean-adjusted Bayesian Vector Autoregressive (BVAR) model. In its quantitative exploration, the study answers two key issues: (i) is there any evidence of decoupling from advanced economy business cycles? And (ii) what was the impact of the Eurozone recession on the growth performance of India? The findings suggest that Eurozone idiosyncratic shocks, on average, had large effects on economic activity in India. The variation explained by the innovations generated by the BVAR model range from 1.8 percent to 3.6 percent in the 1–12 quarter horizon. The main results are supported by the empirical estimations of the Wavelet analysis. The estimated output elasticities suggest that the Eurozone recession had a significant negative impact on Ind...

We explore the finance and economic growth nexus in G‐7 economies as these countries experience significantly higher levels of financial development. Using a balanced panel of 31 years from 1983 to 2013, we provide new evidence on the finance–growth relationship. We show the presence of nonlinearity as there is an inverted U‐shaped relationship between finance and growth in the long run. Estimating the thresholds in the finance–growth nexus, we notice that there exists a threshold effect of finance at 109% of Gross Domestic Product (GDP). We observe that exceeding the threshold would hinder the countries instead of furthering economic growth as too much finance is harmful. Based on the panel Granger causality test results, we claim that financial development should be associated with optimal growth performance. Our findings for the G‐7 economies offer some useful policy inferences to the emerging and developing economies in designing their financial development strategies...

This paper investigates whether the investor attention effect caused by the Google stock search can be used to forecast stock returns. The evolving literature on Google search investor attention effect suggests that high Google search volumes can predict high returns for the first 1–2 weeks, but with a subsequent price reversal. We use a more recent data set that covers the period from 2012 to 2017 in the Indian stock market and employ the quantile regression approach as it alleviates some statistical problems to find that high Google search volumes lead to positive returns. Indeed, the high Google search volumes predict positive and significant returns in the subsequent third, fourth and fifth weeks. The Google search volume index performs as a better predictor of the direction as well as the magnitude of the excess returns. The findings imply that the signals from the search volume data could be of benefit construction of profitable trading strategies. Swamy, Vighne...

We analyze the dynamics of financial development and economic growth in the Euro area as these countries went through considerably higher levels of financial development. Using a balanced panel data of 38 years from 1980 to 2018, we offer new evidence on the finance–growth nexus. We show the presence of nonlinearity as there is an inverted U‐shaped relationship between finance and growth in the long run. Estimating the thresholds in the finance–growth nexus, we notice a threshold effect at 74%–86% of GDP for domestic credit; 51% of GDP for stock turnover ratio; and 65% of GDP for stock market capitalization. We notice that exceeding the threshold causes deceleration in economic growth as too much finance results in crowding out effect for productive economic activities. The panel Granger causality test results show that financial development should be associated with optimal growth performance. These findings in the Euro area provide some useful policy implications to ...

This study investigates the relationship between finance and economic growth in advanced economies as these countries experience significantly higher levels of financial development. Using a fully balanced panel of 31 years from 1983 to 2013 for 24 economies, we provide new evidence on the finance-growth relationship. We evidence the presence of nonlinearity as there is an inverted U-shaped relationship between finance and growth in the long run. The results 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 dev...