ISSN (Online) - 2349-8846

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Economic Rationale of ‘Demonetisation’

The government’s claims about the fruits of “demonetisation” of ₹500 and ₹1,000 notes are analysed. The five claims—fighting terrorism, “black money,” gaining fiscal space, reducing interest rates, formalising informal economy—are scrutinised from an economics perspective. 

Financial Reforms in an Endogenous Money Economy

An examination of the Reserve Bank of India's monetary policy leaves little doubt that India can be suitably characterised as an endogenous money economy. In an endogenous money environment, financial reforms will prove ineffective in stimulating credit supply to large commercial borrowers. They may, however, prove counterproductive by sharpening the credit constraints faced by agricultural and other petty producers in the economy.

A Historical Perspective on the Role of Stock Markets in Economic Development

Providing a critical appraisal of the new mainstream literature, which argues that successful late developers like Germany and Japan had strong stock markets in their early phase of development, this paper tries to track the size of stock markets over the 20th century using data provided by Raymond Goldsmith. It also presents historical case studies of Germany and Japan, which show that government intervention in the financial sector was rife in the early years and proved critical in shaping the size and role of stock markets in their economies. Besides, these case studies do not show that equity funding flourishes when governments adopt a hands-off approach towards the financial system.

Do Stock Markets Allocate Resources Efficiently? An Examination of Initial Public Offerings

This paper examines the pricing of Initial Public Offerings in relation to their future operating performance and risk. ipo firms have lower profitability but receive higher valuation than their industry peers on the expectation that their earnings will grow in the future. The expectation of superior growth is not realised in the post-issue period. It thus appears that low profitability firms conduct ipos when investors are excessively optimistic about their growth potential. The paper concludes that stock markets in India have suffered from excessive optimism and poor evaluation.

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