The Reserve Bank of India today releases Volume-38 of its Occasional Papers. RBI Occasional Papers is a research journal of the Reserve Bank and contains contributions from its staff and reflects the views of the authors. This issue contains four articles and three book reviews.

Articles

1. Nowcasting Real Estate Activity in India using Google Trend Data

This paper by Pratik Mitra, Anirban Sanyal and Sohini Choudhury explains that despite the real estate sector being among the major drivers of economic growth in India and contributing around 11 per cent to Gross Value Added growth since 2011-12, non-availability of data in a timely manner hinders an objective assessment of the sector’s performance. This paper attempts to bridge this gap by employing Big Data Analytics to nowcast the sales growth of real estate companies using Google search data. The paper concludes that the search intensity information improves precision relative to other benchmark approaches while nowcasting the current quarter performance.

2. Volatility Spillovers between Forex and Stock Markets in India

This paper by Sudarsana Sahoo, Harendra Behera and Pushpa Trivedi investigates the price and volatility spillovers between the Indian foreign exchange market (forex) and stock markets. The response of the forex market to volatility spillovers from stock markets is asymmetric, i.e., negative shocks from the stock markets result in higher volatility in the forex market vis-à-vis the positive shocks. The evidence on volatility spillovers during highly volatile periods indicates possible ‘contagion’ impact that amplifies the volatility and exacerbates the stress in the financial system.

3. Inter-temporal Calculative Trust Design to Reduce Collateral Need for Business Credits

Silu Muduli and Shridhar Kumar Dash highlight that credit rationing arising out of informational asymmetry and lack of collateral is a well-recognised economic constraint in credit markets. It focuses on the dimension of trustworthiness (calculative trust) by designing an inter-temporal incentivised payment structure that will induce economic agents to reveal the private information available about a project or true intentions of paying up the credit that is going to fund the project. The model dynamically estimates the collateral needed by taking into account the truthfulness of the borrower. The simulation result also finds that building trust helps small business owners to significantly reduce the need for collateral.

4. Global Liquidity and Foreign Portfolio Flows to India: An Empirical Assessment

In this paper, Amarendra Acharya, Prakash Salvi and Sunil Kumar examine the role of global liquidity as a driver of external financial flows into India. They find that the influence of global liquidity conditions is stronger on foreign portfolio investment flows to India than on foreign direct investment and external commercial borrowings. Furthermore, the liquidity channel of transmission of accommodative monetary policies of the advanced economies to India is found to be more pronounced, while the portfolio balance channel and the confidence channel do not exhibit any statistically significant impact on portfolio flows into India.

Book Reviews

Apart from the above four articles, this issue of Occasional Papers also contains three book reviews:

1. K. Jayanthi Anand reviews “The Architecture of Collapse: The Global System in the 21st Century” written by Mauro F. Guillén. The book argues that the modern global system has ‘become intricate, interconnected, unwieldy and unpredictable’, and it has become unstable due to the way it is currently structured.

2. Dipak Chaudhari reviews, “Financial Crisis, Corporate Governance, and Bank Capital” written by Sanjai Bhagat. The book explains some of the intricate aspects of the global financial crisis of 2007-08, particularly those related to corporate governance and compensation packages of top executives of banks. It offers a unique approach in terms of empirical analysis of the relationship between corporate governance and capital requirement in banks.

3. Madhuchhanda Sahoo reviews the book “Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist” written by Kate Raworth. The book argues that there is an urgent need to reprioritise our objectives with focus on usage of resources and environment sustainability while pursuing the output growth. The book adopts a novel approach of visualising an economy as a ‘doughnut’ whereby the inner ring represents ‘social and human foundation’ and the outer ring indicates ecological aspects. The book argues that our objective should be to stay within the two rings.

Jose J. Kattoor
Chief General Manager

Press Release: 2018-2019/211