ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Macro Stress Testing of Indian Banking System Focused on the Tails

This paper investigates system-wide macro stress testing for credit risk. This paper uses two multivariate regressions, namely, ordinary least square and quantile regression to establish a stochastic relationship between credit quality indicators such as the non-performing advances ratio or the slippage ratio and macro-variables. This paper confirms that a slowdown in the economy along with a firming-up of the interest rate structure is likely to have an adverse impact on the performance of the banking sector in terms of the slippage ratio.

Sectoral Linkages and Growth Prospects

This paper examines the linkage of growth among the agriculture, industry and services sectors of the economy, using both an input-output (I-O) and a simultaneous equation framework. Despite the substantial increase in the share of the services sector in GDP over the years, the I-O tables suggest that the agricultural sector still plays an important role in determining the overall growth rate of the economy through demand linkages with other sectors of the economy.

Optimising the Pace of Capital Account Convertibility

Optimising the Pace of Capital Account Convertibility M J Manohar Rao Balwant Singh The paper formalises the relationship between monetary and exchange rate policy during the process of financial opening; and shows that a rapid opening of the capital account could render an economy vulnerable to speculative attacks. The model is then applied in the current Indian context to determine the optimal pace of capital account convertibility (CAC). The results, obtained using control theory, indicate the urgent need for phasing in CAC gradually because any attempt at 'shock therapy' by exceeding this pace could, under the present circumstances, result in an economic stagnation characterised by low growth, high real rates of interest and overshooting exchange rates.

Money Supply-Prices Causality Revisited

Using data on broad money (M3) and movements in the wholesale price index, this study questions the proposition that changes in the price level are primarily the result of changes in the rate of growth of money supply.
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