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

Articles By Finance

Persistence and Volatility-weighted Measures of Core Inflation for India

Unlike exclusion-based measures which remove food and fuel entirely from core inflation, the proposed core measures, using alternative weighting schemes, assign higher weight to the more persistent and less volatile groups in both food and non-food components to capture the more durable part of inflation. We show that our constructed indices satisfy the common properties of core inflation as (i) an unbiased estimate, (ii) a smoother and persistent component, and (iii) a good predictor of headline inflation, thus providing an alternative gauge of underlying inflation.

ESG Investments

Environmental, social, and governance investments have gradually become an important framework for investment managers to gauge corporate sustainability and therefore provide a scientific basis for responsible investment decisions. Globally, there has been considerable growth in ESG investments. However, the concept is yet to become a widely accepted mainstream tool for the global financial market. Potential shortcomings are identified in this article in the domain of ESG from policy, market, and institutional perspectives.

Monetary Policy in the Midst of Cost-push Inflation

The Reserve Bank of India adopted inflation-targeting monetary policy based on the New Keynesian 3-equation model. How realistic are the assumptions, and how effective have monetary policy instruments been in controlling the inflation rate? Given India’s structural specificities, what are the implications of cost-push inflation for policy rate and output gap? This paper addresses these questions by identifying alternative theoretical possibilities within a simple 3-equation model and locating the Indian specificity by estimating the Phillips curve and monetary policy rule equation. The analysis points towards the constraints of monetary policy in India due to presence of a flat Phillips curve and indicates the possibility of adverse effect on output gap due to presence of Taylor’s rule.

Monetary Growth, Financial Structure, and Inflation

It is argued that a key question of the operation of monetary policy is its decomposition into a price effect and an output effect. Specifically, the
association between the easing of global monetary and liquidity conditions on the one hand, and the significant spurt in inflation, on the other, in recent
times is probed to conclude that across the world, there seems to be an association. The issues of monetary stability, price stability and financial stability are also intimately interlinked.

How Should Banks Estimate Their Expected Loan Loss Provisions to Survive in Difficult Times?

This article explains how banks can use their forward-looking internal credit risk estimates and apply on loan cash fl ows over different time horizons and assess the impact on loss provisions. Such an estimate based on longer historical data will enable the banks to better foresee the uncertainty pertaining to repayment status of their loans and make loss provisions in a more proactive manner.

Critical Importance of Cooperative Federalism

In addition to the three-pillar framework suggested by the Fifteenth Finance Commission, we suggest four constituents, namely the finance commission, NITI Aayog, goods and services tax, and de facto decentralisation, which will help strengthen the “cooperative” element—a key factor for Indian federation to work effectively. Further, the article focuses on finance commissions empowering the local governments and, in particular, assesses the Fifteenth Finance Commission’s thrust to empower the local bodies.