This study has attempted to re-investigate the impact of fiscal deficit (FD) on current account deficit (CAD) (also known as twin deficit hypothesis) in India from 1970–1971 to 2018–2019 in the presence of private saving–investment gap (SI) and exchange rate (EXR). For the empirical investigation, the study has employed the nonlinear autoregressive distributed lag (NARDL) approach to cointegration. The NARDL results found the evidence of an asymmetric effect of FD, SI and EXR on CAD in the long run only. The obtained results support the traditional views of the Keynesian approach that FD has a positive impact on CAD, validates the existence of the ‘Twin Deficit Hypothesis’ in India. Further, results also depict that SI has a positive effect on CAD, whereas EXR has an adverse impact on CAD. From a policy standpoint, the asymmetric impact of FD on CAD provides strong reasons for conceiving policies that are adaptable to changing dynamics in internal as well as external sectors.
India is the second most populous country in the world and stood at seventh rank in a major climate risk index in 2019, which is a grave concern for the Indian government, policymakers and environmentalists. Therefore, the present study examines the role of fiscal policy and monetary policy instruments along with select macroeconomic variables on carbon emission in India over the period 1971–2019 in the non‐linear framework. The outcome of the study reveals that the impact of fiscal and monetary policy instruments on carbon emission is asymmetric in nature. In addition, the positive and negative shocks in fiscal and monetary policy instruments have a positive and negative impact on carbon emissions, respectively. Based on the coefficients’ magnitude, the role of fiscal policy instruments has a more prominent effect on carbon emissions than monetary policy instruments. The findings of the study imply that the Indian government is required to implement green fiscal and monetary policies. Use fiscal policy to implement a ‘green tax ratio’ and a ‘green subsidy programme’ for manufacturers and investors to reduce CO2 emissions. A ‘green lending programme’ should be introduced for commercial banks by implementing monetary policy via the central bank.
This paper aims at modeling the dynamics of oil and agricultural commodity price nexus in linear and nonlinear frameworks in the Indian context. Monthly prices of agricultural commodities from 1982:M04 to 2021:M05 for 37 agricultural commodities under 12 clusters have been considered in the study. For the symmetric and asymmetric impacts of oil prices on agricultural commodity prices, advanced econometric approaches, autoregressive distributed lag and nonlinear autoregressive distributed lag, have been applied, respectively. The results reveal that in the case of aggregate analysis, oil prices have an asymmetric impact on 10 clusters of agricultural commodities in the long run, while disaggregate analysis suggests that oil prices have a long-run positive elasticity with 29 of 37 agricultural commodity prices. Further, the asymmetric causality approach indicates that positive and negative shocks in oil prices Granger cause the prices of 34 agricultural commodities in the short run. The study has significant implications for policymakers, individual and institutional investors, wholesale producers, and primary producers (farmers).
The chronic government deficit (fiscal deficit) and increase in the price level (inflation) have become major concerns for economists and policymakers. While numerous studies have examined the twin problems of the fiscal deficit and inflation for both developed and developing economies, their results are inconclusive due to different estimation techniques, chosen time periods, selection of variables, etc. Therefore, we examined the fiscal deficit-inflation nexus in India for the period from 1980–81 to 2016–17 by employing the Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) approaches. The results of the ARDL approach found no evidence of linear relationship between fiscal deficit and inflation in the Indian context. Further, the empirical findings of the NARDL model confirmed the nonlinear relationship between fiscal deficit and inflation in the long run and no association between money supply and inflation, supporting the ideas of the Fiscal Theory of the Price Level (FTPL) in the case of India. FTPL postulates that public debt and taxation policies drive price level; monetary policy has an indirect role only. Therefore, fiscal policymakers should focus on reducing fiscal deficits. Simultaneously, the Reserve Bank of India (RBI) should regulate lending interest rate so that a mix of fiscal and monetary policies can be applied for controlling inflation in India.
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