Jeevan Kumar Khundrakpam

Responding to QE taper from the receiving end

This paper analyses the spillovers of quantitative easing (QE) and their taper in India, as there could be country-specific nuances that qualify the inferences thrown up by cross-country studies, and therefore, can enrich and empower the on-going debate. Using a combination of event study analyses, generalized method of moments and VAR estimates, it finds that QEs have significantly altered monetary conditions in India. Among the QEs, QE1 had the largest impact and taper announcement had a strong negative impact, with the spillovers working mainly through the portfolio rebalancing channel, followed by the liquidity channel. Going forward, emerging economies are likely to take into account these spillovers in the conduct of monetary policy, with implications for both policy autonomy and global welfare.

Estimating Financial Conditions Index for India

This article constructs financial condition indices (FCIs) for India and explores their predictive ability of business cycle. The estimated FCIs indicate substantial tightening in financial conditions in India since the global financial crisis barring a brief phase during 2010–11. Unlike in the literature, it shows the importance of standardising the financial variables by removing the influence of unit of measurement and not purging the influence of past economic activity as that improves the forecasting ability of FCI about business cycle. In predicting GDP growth, principal component analysis-based FCI outperforms vector autoregression-based FCI but both are better than OECD composite leading indicator, and indicate an upturn in business cycle in India in 2015–16. JEL Classification: E5, E17, E44