Research and Publications

Press Release RBI Working Paper Series No. 01 Banking Stability - A Precursor to Financial Stability@Rabi N. Mishra, S. Majumdar and Dimple Bhandia Abstract *This paper focuses on constructing a Banking Stability Map and Indicator and deducing the linkages with the financial markets and macroeconomic variables. In addition, an attempt has been made to establish the direction of causality between stability of the banking sector and overall financial stability. We attem

Press Release RBI Working Paper Series No. 18 Estimating Impacts of Monetary Policy on Aggregate Demand in India@Jeevan Kumar Khundrakpam Abstract 1Using a structural VAR model on quarterly data from 2000Q1 to 2011Q1, this paper estimated the impact of monetary policy on aggregate demand in India. The overall impact on aggregate demand is then decomposed to observe the differential impact among the various components. It finds that an interest rate hike has a signific

Press Release RBI Working Paper Series No. 17 Asset Liability Mismatches1 (ALMi) in the Indian Banking Sector – The Extent, Persistence and Reasons2 @Rakhe P.B. 3High growth observed in infrastructure loans during the recent years prompted the study to analyse the ALMi positive gap of the banking sector. During the period under study, March 2006 to September 2010, the banking sector reported ALMi positive gap to the extent of 14 per cent of long-term assets indicating

Press Release RBI Working Paper Series No. 16 Sustainable Level of India’s Current Account Deficit@Rajan Goyal* The paper estimates sustainable level of current account deficit (CAD) for India by applying a model akin to `Domar’s Model of Debt Sustainability’ to the threshold level of net external liabilities that economy should not breach to ensure stability of the external sector. Probit analysis based on a select panel of market economies was used to arrive at the

Press Release RBI Working Paper Series No. 13 Fiscal Stance, Credibility and Inflation Persistence in India @Pankaj Kumar and Pratik Mitra Abstract †In the recent past India has experienced high and persistent inflation. In response the Reserve Bank of India cumulatively raised the cash reserve ratio by 100 basis points and the policy rate (repo rate) by 375 basis points between January 2010 and October 2011. Despite these policy actions, the inflation rate however c

Press Release RBI Working Paper Series No. 14: Determinants of Liquidity and the Relationship between Liquidity and Money: A Primer @A.K. Mitra and Abhilasha *The term liquidity is varyingly used signifying financial flows of various kinds, ranging from that originating from the central bank to the overall existent financing available in the banking system. By analysing the impact that central bank actions and autonomous factors such as government financial flows, for

Press Release RBI Working Paper Series No. 15 Sovereign Debt Management and Monetary Policy in India: An Empirical Investigation of Conflict of Interest Argument @Sunil Kumar and N.R.V.V.M.K. Rajendra Kumar Abstract *Based on the conflict of interest argument, separation of SDM from Reserve Bank of India (RBI) has often been suggested, as both these functions vest with RBI. The main thrust of this argument is that cost minimisation for government’s market borrowing p

Press Release RBI Working Paper Series No. 11 Monetary Policy Transmission in India: A Peep Inside the Black Box@Jeevan Kumar Khundrakpam and Rajeev Jain Abstract 1Using SVAR models on quarterly data for 1996-97:1 to 2011-12:1, the paper examines the relative importance of various transmission channels of monetary policy to GDP growth and inflation in India. It finds that external exogenous factors prolong the impact of monetary policy transmission on GDP growth and i

Press Release RBI Working Paper Series No. 12 Countercyclical Capital Buffer Guidance for India@Tulasi Gopinath and A.K. Choudhary* Basel Committee on Banking Supervision (BCBS) has published its guidance for operating the countercyclical capital buffer. It has, inter alia, recommended that credit-to-GDP ratio could be the buffer guide. This paper argues that BCBS buffer guide is not suitable for India and showcases an alternative buffer guide, reflecting their underl

Press Release RBI Working Paper Series No. 09 Monetary Transmission Mechanism in India: A Quarterly Model@Muneesh Kapur and Harendra Behera 1This paper examines monetary transmission mechanism for India in the context of a small macro model using quarterly data. Given the volatility emanating from the agricultural sector, the paper models both overall growth and overall inflation as well as non-agricultural growth and non-food manufactured products inflation, i.e., c

Press Release RBI Working Paper Series No. 10 Systemic Liquidity Index for India @Rabi N. Mishra, G. Jagan Mohan and Sanjay Singh Abstract *Stress in liquidity is at the heart of any banking crisis in history. During the financial crisis of 2007-09, funding liquidity risk caused the collapse of interbank markets, which became the focus of authorities’ attention at restoring order. Accordingly, central banks and other regulatory bodies world-wide have been evolving pru

Press Release RBI Working Paper Series No. 08 Volatility Transmission in the Exchange Rate of the Indian Rupee @Satyananda Sahoo Abstract 1The paper analyzes volatility spillovers from the exchange rates of the Brazilian Real, the Russian Ruble, the South Korean Won, the Singapore Dollar, the Japanese Yen, the Swiss Franc, the British Pound Sterling and the Euro to the exchange rate of the Indian Rupee during 2005-11. The study employs a two-step multivariate GARCH fr

Press Release RBI Working Paper Series No. 07 Measures of Nominal and Real Effective Lending Rates of Banks in India@Deepak Mohanty, A B Chakraborty and S Gangadaran Abstract 1 In a bank-dominated financial sector, lending rates play an important role in the transmission of monetary policy. Yet, it is difficult to observe both nominal and real interest rates in the real time. Even ex post computation of effective nominal and real rates is challenging as banks' effecti

Press Release RBI Working Paper Series No. 06 Evidence of Interest Rate Channel of Monetary Policy Transmission in India@Deepak Mohanty * With the development of domestic financial markets and gradual deregulation of interest rates, monetary policy operating procedure in India in the recent years has evolved towards greater reliance on interest rates to signal the stance of monetary policy. This process is buttressed by significant evidence that policy rate changes tr

Press Release RBI Working Paper Series No. 05 Estimation of Capacity Utilisation in Indian Industries: Issues and Challenges@Atri Mukherjee and Rekha Misra Abstract *The estimation of capacity utilisation (CU) derives its significance from the fact that, if properly assessed, it may provide a reliable indication of incipient inflationary pressure in an economy. Measurement of CU is not confined to a unique method and can be measured for an economy, industry or plant t

Press Release RBI Working Paper Series No. 04 Asset Pricing Model for Inefficient Markets: Empirical Evidence from the Indian Market @Debasish Majumder Abstract *In the last decade, the efficient market hypothesis and its validity for emerging markets grew as a fertile topic of debate in finance. However, the dilemma of market efficiency still remains intractable. It is more likely that any literature review in respect of market efficiency would produce contradictory

Press Release RBI Working Paper Series No. 03 Benchmarking Indian Regulatory Practices to the G20 Financial Reforms Agenda @Anupam Prakash and Rajiv Ranjan 1Post the crisis of 2007-09, financial stability is regarded as a prime policy objective. The reemergence of threats to the banking system in the light of sovereign debt problems in advanced economies has reaffirmed the importance of pursuing financial sector reforms at the international level. The global regulato

Press Release RBI Working Paper Series No. 02 Gold Prices and Financial Stability in India@Rabi N. Mishra and G. Jagan Mohan Abstract * There has been an almost sustained rise in the international gold prices since 2002, with just one deep correction in 2008. As gold is an integral part of savings of a large number of investors, this has raised apprehensions whether any correction in gold prices will have destabilising implications on the financial markets. In this ba

Press Release RBI Working Paper Series No. 01 Inflation Forecasting: Issues and Challenges in India@Muneesh Kapur 1This paper focuses on modelling and forecasting inflation in India using an augmented Phillips curve framework. Both demand and supply factors are seen as drivers of inflation. Demand conditions are found to have a stronger impact on non-food manufactured products inflation (NFMP) vis-a-vis headline WPI inflation; moreover, NFMP is found to be more persis

Press Release RBI Working Paper Series No. 21 Inter-connectedness of Banks and NBFCs in India: Issues and Policy Implications @ A Karunagaran Abstract * The recent global financial crisis (2007-09) has clearly highlighted the gravity of high financial inter-connectedness within the financial system. In the Indian context, this brief study attempts to explore the financial inter-connectedness between NBFCs (both deposit taking and non-deposit taking) with banking syst