The article examines relationship between financial globalization and economic growth in South Asian countries namely Bhutan, Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka. Following the framework of Bekaert et al. (2005) and with the help of Panel VAR and Panel causality (in GMM framework) models the study concludes that the causation from financial globalization to growth in the region appears to be weak. There appears reverse causation running from growth to financial globalization. We found that domestic macroeconomic policies such as fiscal prudence act as pull factors for foreign capital. The article has some interesting results at individual country level. JEL: C33, F21, F36, F65

We analyze the impact of weather shocks on price formation in spot and futures market for food in India where until the recent introduction of commodity futures markets in 2005, the transmission of these shocks to short-term (spot) price movements was unclear. Hitherto, the price discovery mechanism was weak and end price was expected to be different (mostly higher unless some product prices were administered) from the market-clearing price. In addition, this weak mechanism was expected to result in higher price volatility. The introduction of a futures market is expected to reduce risk, a major component in agricultural production as well as in price formation. Though the commodity futures market in India is nascent, we model transmission of weather shocks to futures and spot prices using monthly data. Based on cointegration analysis, our results suggest strong long-run co-movement between futures prices and spot prices for commodities traded in futures markets. Changes in rainfall affect both futures and spot prices with different lags. However, rainfall shocks generate larger responses from futures prices than from spot prices. Although there could be other factors that affect futures prices, after controlling for fuel prices, our results clearly show the transmission mechanism of weather shocks from futures to spot prices. We also explore the changes in responsiveness of prices of major agricultural commodities to rainfall with introduction of futures contracts to facilitate the pass-through of various types of shocks to agricultural commodity prices. Using smooth transition regression, we find that the bivariate relationships between rainfall and prices of rice, wheat and pulses show some nonlinearity with the structural change happening after the introduction of futures market. These relations are found to be much stronger in the post-structural change period that broadly coincides with the introduction of futures market.

This paper tries to examine the extent of the impact of global financial crisis on the Indian Economy. While doing that, it argues that the Indian Economy was already in a slowdown phase, largely due to deceleration in the exports growth and also due to some cyclical factors. With the help of a structural quarterly macroeconometric model, this paper concludes that significant part of the fall in GDP growth due to global crisis is expected to show up in 2009–10. The model estimates the crisis impact on growth to be around 2 per cent in 2009–10. But in 2008–09, fall in GDP growth was largely contributed by the cyclical factors and by sharp rise in the food and fuel prices. The paper also argues that fiscal and monetary stimulus packages could stimulate aggregate demand only in the short to medium term. In the long term, investments (particularly from private sector) would be an important determinant for strong and sustainable economic recovery.

The objectives of monetary policy have always been a topic of intensive debate. This debate has resurfaced during the past few years. In India too monetary policy-making appears to have undergone significant change during the last two decades and has also been responding to changing macroeconomic environment. Against this backdrop an attempt has been made in this paper to model the monetary policy response function for India, for the period April 1996 to July 2015. Using 91-day Treasury bill rate as the policy rate, we find that the monetary policy has been responsive to inflation rate, output gap and exchange rate changes during this period. We find substantial time-varying behavior in the reaction function. The regime shift tests show that the transition is driven by inflation gap as well as exchange rate changes. Highly complex nature of dynamics of interest rate does not allow us to estimate many models, but the models estimated show that the monetary policy responds to inflation gap as well as exchange rate changes. Another important finding is that there is a high degree of inertia in the policy rates.

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