Press Release RBI Working Paper Series No. 11 Inflation Forecast Combinations – The Indian Experience Joice John*, Sanjay Singh and Muneesh Kapur@ Abstract 1 Accurate, reliable and unbiased forecasts of inflation are critical for the monetary policy decision making process, more so for a flexible inflation targeting central bank. Inflation forecasting is, however, turning challenging across countries. This paper explores the merits of forecast combination approaches f

Press Release RBI Working Paper Series No. 10 Are Food Prices Really Flexible? Evidence from IndiaGV Nadhanael* Abstract@This paper revisits the notion of flexibility of food prices by compiling a novel micro level dataset for India. It shows that food prices in India exhibit varying degrees of price stickiness across product groups. Furthermore, the price setting behaviour broadly matches predictions of sticky price models with menu cost. Model calibration shows that

Press Release RBI Working Paper Series No. 09 Measuring Financial Stress in India @Manjusha Senapati Rajesh Kavediya Abstract 1This paper focuses on the construction of financial stress indices for the Indian financial system using market-based indicators and three different aggregation methods. The paper finds that these indices provide useful information, which is not captured by the market indicators, on the stress build-up in the financial system. The financial st

Press Release RBI Working Paper Series No. 08 Subnational Government DebtSustainability in India:An Empirical Analysis @Sangita Misra Kirti Gupta Pushpa Trivedi Abstract *Recognising the increasing precedence of fiscal shocks leading to a deterioration in states’ debt due to the realisation of contingent liabilities, this study assesses the debt sustainability of Indian states by employing both conventional debt and augmented debt, obtained by incorporating informatio

Press Release RBI Working Paper Series No. 07 Impact of Leverage on Firms’ Investment: Decoding the Indian Experience @Avdhesh Kumar Shukla and Tara Shankar Shaw Abstract 1It has been observed in India that economic growth cycle coincides with the investment cycle. We find that firm-level leverage could provide early signals about the movements in the investment cycle. Furthermore, a firm’s leverage adversely affects its investment activity after a threshold. Regressi

Press Release RBI Working Paper Series No. 06 Liquidity Shocks and Overnight Interest Rates in Emerging Markets: Evidence from GARCH Models for India @Bhupal Singh Abstract *This paper examines the role of key frictional and structural liquidity shocks in shaping the movement in call money rates and the pattern of volatility. Using Generalized Autoregressive Conditional Heteroscedasticity models, this study finds that both structural and frictional liquidity shocks ar

Press Release RBI Working Paper Series No. 05 Core Inflation Measures in India – An Empirical Evaluation using CPI Data @Janak Raj, Sangita Misra, Asish Thomas George and Joice John Abstract *An appropriate measure of core inflation provides a useful guide for monetary policy. This study analysed eleven candidates of core inflation measure in India, based on Consumer Price Index for the period from January 2012 to September 2019 for assessing their suitability as meas

Press Release RBI Working Paper Series No. 04 Macroeconomic Effects of Uncertainty: A Big Data Analysis for India @Nalin Priyaranjan and Bhanu Pratap Abstract * Uncertainty about the current state and near-term outlook of an economy as well as the likely course of future policy actions can prompt economic agents to alter their decisions to spend, save, invest and hire. In this paper, we construct three alternative indices to measure the level of uncertainty for the In

Press ReleaseRBI Working Paper Series No. 03 Nowcasting Indian GDP growth using a Dynamic Factor Model @Soumya Bhadury Saurabh Ghosh Pankaj Kumar Abstract 1In India, the first official estimate of quarterly GDP is released approximately 7-8 weeks after the end of the reference quarter. To provide an early estimate of current quarter GDP growth, we construct single-index dynamic factors (DFs) using a sequentially expanding list of 6, 9 and 12 high-frequency indicators.

Press Release RBI Working Paper Series No. 02 Construction of Bivariate Fan Chart from Joint Distribution Purnima Shaw@ Abstract 1A fan chart, which depicts uncertainties in projections of macroeconomic variables, is presently limited to univariate framework. However, to illustrate the uncertainties in forecasts of two mutually dependent variables, a bivariate framework is required. Using a joint distribution of two related variables, this paper proposes a theory for

Press Release RBI Working Paper Series No. 01 Exchange Rate Pass-through in Emerging Economies @Michael Debabrata Patra, Jeevan Kumar Khundrakpam and Joice John Abstract 1This paper provides updated estimates of exchange rate pass through (ERPT) for 17 emerging market economies (EMEs) that constitute around 75 per cent of total EME output. These estimates are robust with respect to methodological biases encountered in the literature. Average ERPT to consumer inflation

Press Release RBI Working Paper Series No. 06 Robust Wald-type Test Statistics based on Minimum C-divergence Estimators @Avijit Maji Leandro Pardo Abstract *Recently introduced C-divergence estimators as well as the associated test statis-tics have shown a good robustness behavior. However, one shortcoming of these test statistics is that their asymptotic distribution, in general, is not a chi-square distri-bution but a linear combination of chi-square distributions.

Press Release RBI Working Paper Series No. 05 Term Premium Spillover from the US to Indian Markets Archana Dilip* Abstract #The paper estimates and analyses term premium in India and makes an assessment of the interconnectedness and transmission of shocks from the US term structure of sovereign bond yields to that of India. The term premium is estimated by decomposing the yield into two components – risk-neutral rate which reflects expectations of future short-term ra

Press Release RBI Working Paper Series No. 04 Macroeconomic Forecasting in India:Does Machine Learning Hold the Key to Better Forecasts?Bhanu Pratap, Shovon Sengupta* Abstract#Forecasting of macroeconomic indicators is a challenging task, compounded by complex processes and dynamic nature of the macroeconomy. With recent advancements in computing power and the advent of data, machine learning methods have been explored as an alternative to traditional forecasting meth

Press Release RBI Working Paper Series No. 03 Does Financial Cycle Exist in India? @Harendra Behera, Saurabh Sharma Abstract #The paper tries to identify the existence of financial cycle in India by examining its main characteristics. Using three distinct methods – turning point analysis, spectral analysis and band-pass filter – and quarterly data on credit, equity prices, house prices and real exchange rate for the period 1960:Q1 through 2018:Q4, the cyclical propert

Press Release RBI Working Paper Series No. 02 Cross-border Trade Credit: A Post-Crisis Empirical Analysis for India @Rajeev Jain, Dhirendra Gajbhiye and Soumasree Tewari Abstract *The paper profiles trade credit extended by domestic and foreign banks to Indian importers, focusing on its size, composition and cost pattern. Using a panel data of 55 banks for 2007-08:Q1 to 2016-17:Q4, the paper finds that both demand and supply-side factors influence the flow of trade c

Press Release RBI Working Paper Series No. 01 Inflation Expectations of Households: Do They Influence Wage-Price Dynamics in India? @Sitikantha Pattanaik, Silu Muduli and Soumyajit Ray Abstract 1This paper examines the usefulness of survey-based information on inflation expectations of households in the analysis of inflation dynamics in India. As household inflation expectations do not satisfy the statistical properties of rationality and unbiasedness, hybrid versions

Press Release RBI Working Paper Series No. 06 Measuring Financial Capability of the Street Vendors @D.V. Ramana and Silu Muduli Abstract 1Financial capability of an individual is the ability to use and manage financial products for current and future financial needs with adequate financial knowledge. This paper examines financial capability on four dimensions- financial management to meet current needs, future financial planning, financial products management, and fin

Press Release RBI Working Paper Series No. 05 India’s Investment Cycle: An Empirical Investigation @Janak Raj Satyananda Sahoo and Shiv Shankar Abstract 1This study estimates the duration of the investment cycle and examines the determinants of investment activity in India. Using the National Bureau of Economic Research (NBER) dating procedure, the study finds that the real investment rate in India followed a three-year cycle during the period from 1950-51 to 2017-18

Press Release RBI Working Paper Series No. 04 Economic Activity and its Determinants: A Panel Analysis of Indian States @Garima Wahi and Muneesh Kapur Abstract 1This paper assesses the impact of both monetary and fiscal policy along with other macroeconomic determinants on economic activity using state-level Indian data. Since economic activity can vary across states due to local factors and state government policies, a state-level empirical analysis, by providing mor