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The paper aimed to investigate the cyclical dynamics of the business, credit, and investment sectors in India. This was achieved by utilizing annual data from 1980 to 2021 and investigating the impact of domestic and global financial cycles on the business cycle. The cycles were derived using the Hodrick–Prescott filter, and structural vector autoregression (SVAR) and Granger causality tests were employed to establish the dynamic interactions among these cycles. The results of the study revealed a clear divergence between domestic and global financial cycles. Additionally, the SVAR analysis confirmed the presence of a long-run relationship between business, investment, and credit cycles. Notably, the findings suggest that credit cycles can provide valuable insights to manage business cycles in India. Finally, robustness checks were conducted to confirm the reliability of SVAR findings. [ABSTRACT FROM AUTHOR]

Purpose: Rising crude oil prices are likely to have an asymmetric and nonlinear negative impact on GDP growth. The purpose of this paper is to ask the following questions: Does the effect of a crude price shock depend on the position of crude price cycle, i.e. is the effect of price shock larger/smaller in periods of already elevated crude price? And, does the effect of crude price shock depend on the position of the economy in the business cycle, i.e. does the crude price shock affect growth differentially in periods of low/high growth? Design/methodology/approach: The authors use a local linear projection (LLP) model to examine the asymmetric impact of crude price on GDP growth in an environment of high crude price. Next, a quantile regression model is used to account for differential impact on growth around high and low growth periods. Findings: Results from the LLP model show that when oil price is above $70, each additional percentage point of increase in oil price results in a 20 basis point (bps) drop in quarterly GDP growth rate on average. The impact is felt between the third and sixth quarters. When oil prices rise above $80, the impact is similar, with a sharper drop in growth (30 bps). The exercise with quantile regression shows that the impact of an increase in crude prices on growth is almost double at lowest quantiles of growth compared with the median. Originality/value: There is a growing literature that evaluates the impact of oil price in developing economies. However, nonlinearities in crude price-GDP growth dynamics have not received enough attention, especially during phases of elevated crude price or a growth downcycle. The authors believe that accounting for such effects is especially relevant in the present economic scenario of high oil prices because of geopolitical crises and a period of vulnerable growth because of supply chain issues arising out of the pandemic. Using recent data from oil-importing emerging market economies such as India, this paper fills a crucial gap in the literature. [ABSTRACT FROM AUTHOR]

Purpose: The paper aims to analyse the impact of economic and governance factors on remittance inflows to India from the UK, USA and UAE. India is globally recognised as the largest recipient of remittances. Design/methodology/approach: Using a comprehensive time series data set spanning 1996 to 2022, the authors use an innovative non-linear autoregressive distributed lag model approach to examine the influence of economic growth, corruption control and employer availability in the three source countries on remittance inflows to India. Findings: The results indicate that in the UAE, changes in economic growth and corruption control directly affect remittance outflows. However, the presence of employers in the UAE has minimal impact on remittance outflows to India. Regarding the UK, fluctuations in economic growth primarily drive remittance outflows to India. The effect of corruption control and employment opportunities on remittance outflows is marginal. In the USA, economic growth does not notably impact remittance outflows, whereas corruption control and employment opportunities significantly influence the outflows to India. Originality/value: These findings have important implications for policymakers. Analysing macroeconomic factors from key remittance-sending nations offers valuable insights for Indian policymakers and their international counterparts to enhance remittance inflows. The study focuses on three countries that collectively contribute to about 50% of India's remittances, providing a unique contribution compared to the usual country-specific or regional focus in existing literature. Finally, leveraging these findings, NITI Aayog, an organisation dedicated to achieving India's sustainable development goals, can effectively monitor macroeconomic indicators related to significant remittance-sending countries. [ABSTRACT FROM AUTHOR]

Purpose: Equity research in experimental psychology reveals investors' overreactions to bad news events. This study of asymmetric price structures in equity markets investigates whether such behavior predicts stock returns in an emerging market of India. Design/methodology/approach: The research decomposes Bombay Stock Exchange (BSE) Sensex returns into Extremely Positive Returns (EPR) and Extremely Negative Returns (ENR) based on extreme values at first and then tests their lead–lag relations. Findings: The empirical finding is consistent with the existing evidence of asymmetric news effects on stock returns in India. In precise, ENR robustly predicts one-month-ahead EPR for the sample period from January 1991 to March 2020. This predictive power persists even in the presence of popular valuation ratios and business cycle variables. Practical implications: The paper explains the rationale of extreme value modeling in price forecasting. Investors can find additional utility gains from market cycle information while predicting extreme returns in Indian stock market. Originality/value: The paper is unique to understand business cycle effects in extreme return reversals in emerging markets. [ABSTRACT FROM AUTHOR]

• Cyclicality in aggregate productivity predicts the efficiency of resources reallocation. • Aggregate productivity growth originates from within-plants, allocative efficiency gain, and due to entry and exit. • We exploit the Great Recession to analyse the validity of the 'Cleansing' or 'Scarring' effect of recession and 'Schumpeterian Darwinian Selection' for Indian manufacturing. • The contributions to aggregate productivity growth from within-plant and net-entry effects are procyclical. • Plants in export-oriented industries are crucial in explaining the pro-cyclicality. • The exporting sectors during 2008-09 shifted resources from more productive to less productive plants. • The relatively productive exporters exited the markets following the global crisis, scarring the economy. • The positive contribution from the net-entry exit effect of plants during the economic downturn validates the 'Schumpeterian approach of Darwinian Selection'. Understanding the cyclicality in aggregate productivity helps answer whether the economy allocates resources efficiently or not. The paper analyses the sources of aggregate productivity growth, such as direct efficiency gain within-plants, allocative efficiency gain, and gains due to entry and exit during economic fluctuations. In particular, we exploit the economic shock of the Great Recession to analyse the validity of the 'Cleansing' or 'Scarring' effect of recession and 'Schumpeterian Darwinian Selection' for Indian manufacturing. The rise and fall of within-plant and net-entry effects during the economic fluctuations explains the pro-cyclicality of productivity growth. Plants in export-oriented industries are crucial in explaining the pro-cyclicality. Negative external shock to exporting sectors during 2008–09 shifted resources from more productive to less productive plants. The relatively productive exporters exited the markets following the global crisis, scarring the economy. Nonetheless, the positive effect from the net-entry exit of plants during the economic downturn makes the 'Schumpeterian approach of Darwinian Selection' valid. [ABSTRACT FROM AUTHOR]

This paper is an empirical attempt to assess the relations among business cycles, financial cycles, and economic uncertainty for India during the period January 2003 to January 2020. Empirical findings from the vector autoregression model suggest a bidirectional causal relationship between the real and financial markets. Further, the aforementioned markets are found to influence the uncertainty index in India. We employ the Granger causality test in the frequency domain which exhibits the dynamic nature of causal relations, while our novel fractal connectivity approach reveals the long‐run correlation structure among all three variables. [ABSTRACT FROM AUTHOR]

This paper presents an update on the business cycle and growth rate cycle chronology of the Indian economy by identifying the peaks and troughs in the quarterly released real GDP time series. The results reveal that the Indian economy witnessed three classical contractions and nine growth rate deceleration phases between April 1996 and March 2021. Other business cycle features, viz., duration, amplitude and sharpness are also derived. The results confirmed the existence of long expansions and short contractions as per the classical approach. The growth rate cycle of India, however, displays symmetric nature with similar duration, amplitude and sharpness being observed in acceleration as well as deceleration phases. Further, this study makes an attempt to contribute to the dating methodology by highlighting the defects in them and thereby proposing modifications to rectify the defects. [ABSTRACT FROM AUTHOR]

This article examined whether the Wagner's law that represents the long-run relationship between income and public expenditure holds at the subnational level in India. It also examines whether the Wagner's law is revenue expenditure specific or capital expenditure specific in the context of Indian sub-nationals. The paper covers 21 Indian States and a time period of 40 years, from 1980-81 to 2019-20. In this study we have assessed six pairs of relationships among state-level income, public expenditures, revenue expenditure, capital outlay, public expenditure on economic services, public expenditure on social services, and expenditure on the developmental sector. The validity of the law was examined for nine different panels of states broadly under income categories and geographical regions. Unlike first-generation panel techniques, which fail to account for the aspects of cross-sectional independence and heterogeneity, the present study tests the validity of the Wagner's law using the second-generation panel unit root method and cointegration approach. The analysis adopted Panel Dynamic Ordinary Least Square to test the evidence of Wagner's law hypothesis. The findings reveal that Indian states are heterogeneous in terms of public expenditure, and there exists cross-sectional dependence. There also exists a long-run cointegrating relation between state-level income and state-level public expenditure. For the full sample, while this study finds holding Wagner's law, there is a mixed validity of the law in different panels across income categories and regions. In addition, it is observed that the validity of Wagner's law in the Indian Subnational context is mainly driven by the high-income major states, and it is more capital outlay centric. To conclude, these responsive affiliations comprehend the effectiveness of public expenditure as a fiscal policy instrument in stimulating economic growth and the contribution of economic growth in the budget exercise at the subnational level. Therefore, subnational governments need to be more strategic to ensure growth momentum as the public expenditure indirectly and directly causes the living standard and welfare of the people in the economy. It must be acknowledged that India adopted fiscal rules in 2005, which may limit the procyclical fiscal policy during the swings in the business cycle, and thus have implications for budget exercises at the subnational level. [ABSTRACT FROM AUTHOR]

The recent economic crises caution us that a better understanding of the "financial cycle" is important in designing the right policy measures to tame the financial and macroeconomic instability. This study is an attempt to characterize the financial cycles in India and understand it's linkage with the business cycles during the period from 1990q1 to 2019q4. First, this study derived an aggregate measure of financial cycle from the low frequency component of the credit and equity price cycle decomposed using discrete wavelet transformation method. Next, turning point analysis is performed to characterize the stylized facts of the financial cycles in India. Lastly, Toda‐Yamotto causality test is performed to understand the linkage between the financial and business cycles in India. The analysis confirmed presence of financial cycles in India with the average duration of 12 years and expansion and contraction lasting 6 years. The causality test provided significant evidence for a causal relationship running from financial cycle to business cycles in India. These findings point to the need for a carefully designed macroeconomic policy with macro‐prudential orientation to achieve financial and macroeconomic stability in India. [ABSTRACT FROM AUTHOR]

In view of the interaction between demand and supply shocks and the nature of the disparity in business cycles between Advanced Economies (AEs) and Emerging Market Economies (EMEs), we reinvigorate policy "silver bullets" that ascertain a sustainable growth revival in the aftermath of the COVID-19 shock. Using a novel business cycle dating algorithm, we identify up-cycle and down-cycle phases in India's gross domestic product growth rate and use dynamic factor analysis using several high-frequency indicators for tracking private investment activity in India. On the demand side, our empirical results indicate that a boost to private investment can arrest a growth deceleration during a down-cycle, via consumption and output channels. We also observe that both the quantum and quality of public expenditure play an important role in arresting the growth deceleration. On the supply side, however, global supply chain disruptions could dampen the pace of investment during the post-COVID investment-led recovery. For both channels to work, credit offtake is necessary for a bank-dominated EME like India. Finally, despite low-capacity utilization rates, we draw several policy conclusions to jump-start economic activity levels. [ABSTRACT FROM AUTHOR]

• We estimate macroeconomic shocks using a medium scale new Keynesian model for India. • Our smoothed estimates of shocks mimic the actual transition of the economy during 1997–2019. • We find that the interest rate remained contractionary during 2013–16 despite falling inflation, characterized as policy error. • If supply side shocks (adverse productivity or mark-up) dominate, such policy errors tend to occur. • Such large-scale policy error can disrupt financial intermediation by creating bad assets in the banking sector. In the immediate aftermath of the global financial crisis, the monetary policy in India became accommodative as in other major economies, but the policy subsequently turned highly contractionary despite falling inflation, which we characterize as policy errors. Government expenditure also had similar pattern. This paper therefore estimates a medium scale New Keynesian model (with earnings and assets based collateral constraint) to explore the impact of such policy errors on Indian business cycles, capturing the prevailing narrative on both monetary and fiscal policies along with the actual inflation scenario. Our smoothed estimates of mark-up, productivity, interest rate and government expenditure shocks mimic the actual transition of the economy, with both policy shocks moving together in a similar pattern in the post crisis period. We find that the interest rate policy was highly contractionary during 2013-2016 which led to significantly lower output. We rationalize that if supply side shocks (adverse productivity or mark-up) dominate, such policy errors tend to occur, suggesting that policy makers need to pay attention to the sources of inflation in a developing economy while setting demand-management policies. Given the current pandemic as more of a adverse supply shock, similar policy errors are likely to occur if interest rate responds to this type of inflationary shocks. [ABSTRACT FROM AUTHOR]

In recent years, the export baskets of developing economies have undergone a structural shift away from traditional exports towards more technology-intensive exports. The case of India, in particular, is important as the performance of Indian exports in terms of their productivity is now at par with that of developed countries. Since trade integration has significant implications for output comovements, we analyse whether this phenomenon of a structural shift in India's intra-industry trade composition has had any impact on its business cycle synchronisation with its developing and developed trade partners. Using a panel threshold regression model, our estimates reveal that intra-industry trade in technology leads to a convergence in business cycle of India with only its developing country trade partners. Further, when the GDP per capita of the partner country is greater than the threshold estimate, we find a negative relationship between technology-intensive trade and output comovements. [ABSTRACT FROM AUTHOR]

Do the different types of financial friction have differential implications for monetary transmission in emerging economies? We investigate this question using India as the country for analysis. We adopt a New Keynesian business cycle model with bank intermediation, extend it by the Indian economy‐specific features and validate with the data. The baseline model explains the co‐movements of interest rates, incomplete pass‐through and sluggish adjustment mechanism of the macro‐financial variables for a policy interest rate shock. It identifies the collateral‐constrained, financially excluded households and low proportion of savers as the primary sources of frictions causing weak monetary transmission. [ABSTRACT FROM AUTHOR]

One strand of business cycle research focuses on the analysis of the comovement of business cycle variables at the aggregate and sectoral levels. Following this line of research, this article examines the volatility and inter‐industry comovement of output in the context of India for the post‐liberalisation period, that is, April 1992–December 2019. The study employs the dynamic conditional correlation‐multivariate generalised autoregressive conditional heteroscedasticity framework and thereby estimates the conditional variance and the time‐varying correlations. The results indicate that the volatilities of the capital goods sector and consumer durables sector relative to that of the aggregate industrial sector are higher, suggesting a higher amplitude of growth rates in these sectors. The conditional correlation estimates reveal that the use‐based sectors are positively correlated with the aggregate industry, and the capital goods sector has the highest correlation with the aggregate sector. Given that the capital goods sector is crucial for the development of the economy, it is essential to bring more stability and sustain growth in this sector. The results further point towards positive but relatively weak correlations between the pair of sectors. The finding of positive correlation underscores the comovement of different groups of industries. The relatively weak correlations between the pairs of use‐based sectors might be because of a lower degree of transmission of shocks from one use‐based sector to another. [ABSTRACT FROM AUTHOR]

New Keynesian dynamic stochastic general equilibrium models with various specifications of technology, markup, and interest rate shocks are estimated with Indian data using Kalman filter based pure and Bayesian likelihood estimation. Preference and interest rate shocks are found to be important for output determination, whereas markup and interest rate shocks are important for inflation. News, as contained in stock market variables and arising from anticipated interest rates, affects growth of gross domestic product. Interest rate shock is anticipated at horizon of one quarter and out of total variance explained by interest rate shock, one third is due to the anticipated shock. Anticipated interest rate shock diminishes the share of preference shock in output determination. Although markup shock has a large share, its persistence is low. There is evidence that permanent component of technology is not well anticipated. Once we incorporate this, technology shocks affect output more, although they still remain much below US levels. Implications for policy include forward guidance on interest rates, less reaction to short‐term supply shocks, and allowing technology shocks to play out. [ABSTRACT FROM AUTHOR]

History of business economic cycles suggests that the market economy is subjected to fluctuations and that can be observed and predicted more meaningfully for the understanding of behavioral interactions of economic agents including institutions. Considerable amount of empirical analysis pertaining to firms' growth, expansion and survival during recession has demonstrated growth potentials of the firms which are ideally synchronized with all the operational areas of the firm's conducts and performances while focus has been laid down more on production, labor productivity and market share. Our proposed agenda is to examine how strategies have influenced the competition and competitiveness under broad scenario of recession in India nearly for five years and more particularly after the impact of covid-19. The simultaneous equation model is constructed which comprises of structural specifications consistent with the theory by netting the framework that are compatible and coherent. Persistent dynamics produced in the market by consumer, producer and retailer has a long bearing on firms' behavior both in terms of its strategy and long-term objectives. Although, combinations of strategies adopted during recession reveal both price and non-price competition strategies have been followed aggressively, as per our estimates, cut throat price competition strategies have evolved in complementing the firms' strategic positioning and market competition. [ABSTRACT FROM AUTHOR]