Estimation of Macro-financial Linkages for the Indian Economy

Banerjee, Shesadri; Anand, Jayanthi K.; Bhide, Shashanka

doi:10.1177/0972652720927856

Cited by 3 publications

(2 citation statements)

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“…She attributed this finding to the choice of reference variable and the use of the multitaper method of the spectrum. A recent study in the Indian context finds that business cycle leading financial cycle through the expectations channel (Banerjee et al, 2021). To be best of our knowledge, there is no study found in the Indian context that examines the properties of financial cycles per se .…”

Section: Literature Reviewmentioning

confidence: 99%

Characterizing India’s Financial Cycle

Behera

Sharma

2022

Journal of Emerging Market Finance

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The severity of the effects of global financial crisis resuscitates the need for assessing the macro-financial linkages and measuring financial cycle to prevent the economy from major financial shocks. Our article measures financial cycle by using turning point analysis, spectral analysis and band-pass filter and provides the evidence on the existence of financial cycle in India. We find the length and duration of cycles in financial variables are much greater as compared to the business cycle. While both credit and equity prices drive financial cycles over time, the contribution of house prices has increased since mid-2000s. We find that the expansionary phase of the financial cycle provides an early warning signal about stress build-up in the banking sector and impending depress in the economy. JEL Classification: C22, E30, E44, E58, G18

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Section: Literature Reviewmentioning

confidence: 99%

Characterizing India’s Financial Cycle

Behera

Sharma

2022

Journal of Emerging Market Finance

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“…Most of the previous works that concentrate on fiscal policy and financial development without addressing this gap (Alenoghena, 2015;Evans, 2020;Gnimassoun & Do Santos, 2021;Ismihan & Ozkan, 2012;Mun & Ismail, 2015;Nwaogwugwu, 2018;Umaru et al, 2023). Also, Banerjee et al (2021) reasoned that the financial sector is strongly linked to macroeconomic performance. Therefore, this research aims to establish the threshold effect of government expenditure on financial depth and examine how the threshold affects the direction of fiscal deficit and domestic debt.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Policy and Financial Depth in Nigeria: An Application of Threshold Regression Modeling

Baita,

Abdullahi,

Muhammad

2023

IJFEB

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The study examines Nigeria's non-linear relationship between fiscal policy and financial depth. In essence, the study is concerned with the impacts of fiscal deficit, domestic debt, and government expenditure on financial depth. The study uses four indicators of financial deepening: liquid liabilities, credit to the private sector, deposit money banks’ assets and financial system deposits (all indicators are expressed as percent of GDP). In particular, the government is the threshold variable expected to have a threshold effect on Nigeria's financial depth. The study covers 60 years between 1961 and 2020 and employs a threshold regression model to achieve the research objectives. A linear regression model is employed for the robustness test by including the government expenditure square to test the significance of non-linearity. The study's findings establish fiscal policy's significance in driving financial depth. Beyond the threshold of 8.11 percent, government expenditure significantly increases financial deepening. This is consistent across the indicators of financial depth and the overall financial depth. It further shows the important role of fiscal deficit and domestic debt in deepening the financial market as the threshold value exceeds 8.11 percent. However, fiscal may have a negative, though insignificant, effect on financial depth when the threshold of government expenditure is no more than 8.11%. Real per capita is also a key factor in promoting financial depth. Therefore, higher income is important for a financially deeper financial system. Therefore, attaining minimum government expenditure is crucial for accelerating financial development in Nigeria.

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