Business cycle synchronization: Disentangling direct and indirect effect of financial integration in the Indian context

Padhan, Rakesh; Prabheesh, K.P.

doi:10.1016/j.econmod.2019.10.010

Cited by 15 publications

(8 citation statements)

References 37 publications

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“…As any reduction in the interest rate differential (between domestic and global) reduces the returns of the global investors who invest in these countries’ currencies, demand for foreign currency increases, and thereby domestic currency depreciates. While some of the recent studies have highlighted how changes in interest rate can affect the international financial markets through foreign investment (Prabheesh, 2013; Ahmed and Zlate, 2014), economic activity and business cycle fluctuations (Prabheesh and Vidya, 2018; Padhan and Prabheesh, 2020), and effectiveness of monetary policy transmissions (Shareef and Prabheesh, 2020), the immediate effect is felt in the international exchange rates [4]. As the changes in interest rates by central banks globally during COVID-19 pandemic may have exerted influences on the exchange rates, it is imperative to analyze the link between the interest rates and exchange rates during the present pandemic period.…”

Section: Introductionmentioning

confidence: 99%

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

Garg

Prabheesh

2021

SEF

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Purpose This paper aims to investigate whether the interest rate differentials Granger cause expected change in the exchange rate during the COVID-19 period. The study examines if the investors in the international assets and exchange rate markets take advantages of the relevant information obtained during the COVID-19 pandemic. Design/methodology/approach This paper used daily data ranging from January 31, 2020 to June 30, 2020 and considered BRIICS economies. The study implemented the Toda–Yamamoto’s Granger causality approach to identify the causality between interest rate differentials and exchange rates. For robustness checks, the study used ARLD short-run dynamics to infer causal relations. Findings Overall, the results indicate that the interest rate differentials improve the predictability of subsequent exchange rate changes in all six BRIICS economies during the COVID-19 period wherein investors are forward-looking. The empirical results pass the robustness checks. Originality/value There is a lack of studies exploring the relationship between interest rate differentials and exchange rates in the presence of an unanticipated event such as the current pandemic. To the best of the authors’ knowledge, this is the first study to explore the causal linkages between interest rate differentials and expected change in exchange rates, focusing on the COVID-19 outbreak period.

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Section: Introductionmentioning

confidence: 99%

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

Garg

Prabheesh

2021

SEF

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“…En un contexto similar, existen otros estudios que plantean que el comercio entre economías con distintos niveles de desarrollo puede ocasionar la divergencia de los ciclos económicos (i.e. Cheng et al 2019;Padhan y Prabheesh, 2020).…”

Section: Revisión De La Literaturaunclassified

Determinantes de la sincronización de los ciclos económicos en América del Norte

Anguiano-Pita

Ruíz-Porras

2022

Estudios de Economía

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“…He concludes that the overall effect of trade on business cycle synchronization is strong, specialization has a sizeable direct effect on business cycle synchronization, and financially integrated regions have significantly more synchronized business cycles. Other studies (including Imbs, 2006;Kalemli-Ozcan et al, 2013;Padhan and Prabheesh, 2020) are concerned with the role of financial integration. Imbs (2006) and Padhan and Prabheesh (2020) show that financial integration positively influences business cycle synchronization.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Other studies (including Imbs, 2006;Kalemli-Ozcan et al, 2013;Padhan and Prabheesh, 2020) are concerned with the role of financial integration. Imbs (2006) and Padhan and Prabheesh (2020) show that financial integration positively influences business cycle synchronization. In particular, Imbs (2006) shows that financial integration strengthens business cycle synchronization even after the effects of finance on trade and specialization are accounted for.…”

Section: Literature Reviewmentioning

confidence: 99%

Real exchange rate synchronization in the NAFTA region

Baghestani

2021

JES

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Purpose The literature mostly investigates the impact of trade and financial integration on business cycle synchronization. The author differs by focusing on the real effective exchange rate as the target variable in the North American Free Trade Agreement (NAFTA) region. In particular, the author investigates synchronization by analyzing the short- and long-run dynamics of the real effective exchange rates of Canada, Mexico and the US for 2008–2019. Design/methodology/approach The author first employs stationarity and cointegration tests to specify and estimate the long-run equilibrium relation between the real effective exchange rates of Canada, Mexico and the US. The author then specifies and estimates an error-correction model for each real effective exchange rate in order to investigate whether the adjustment in eliminating disequilibrium is asymmetric. Findings The results indicate that the real effective exchange rates of Canada, Mexico and the US are cointegrated with only one long-run equilibrium relation. Canada's real effective exchange rate responds symmetrically to eliminate both negative and positive disequilibrium with a similar speed of adjustment. However, the response of Mexico's real effective exchange rate is asymmetric, as it responds to eliminate only positive disequilibrium. The US real effective exchange rate does not respond to disequilibrium, perhaps because it has a large economy with much stronger competition beyond the NAFTA region than both Canada and Mexico. Originality/value This is the first study that investigates real effective exchange rate synchronization in the NAFTA region.

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Business cycle synchronization: Disentangling direct and indirect effect of financial integration in the Indian context

Cited by 15 publications

References 37 publications

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

Determinantes de la sincronización de los ciclos económicos en América del Norte

Real exchange rate synchronization in the NAFTA region

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