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

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Reflections on Analytical Issues in Monetary Policy

Analytical issues have arisen in the conduct of flexible inflation targeting as the framework of monetary policy, adopted formally by India in 2016, despite the noticeable downward drift in the inflation rate and concerns of many economists about its relevance in the light of the global financial crisis. Issues such as the framework’s rationale, the medium-term inflation target, the meaning of real interest rate in the Indian context, the realism in respect of inflation expectations and of the inferred logic of the yield curve, and the implications for economic inequalities have been pointed out.

Vulnerability of Emerging Market Economies to Exogenous Shocks

The transmission of global demand, oil supply and monetary policy shocks on the Indian economy are empirically examined using a parsimonious structural vector autoregression model for the period 1996 to 2016. Global demand shocks exert the most dominant effect causing fluctuations in various macroeconomic variables, whereas global monetary policy spillovers play an important role in affecting domestic short-term interest rates and financial asset prices. Global oil supply shocks, given its relative weightage as an intermediate input, have a greater impact on wholesale price index inflation than on consumer price index inflation. Given the rising trade and financial integration of the Indian economy, a quantitative impact analysis of these global shocks assumes importance for macroeconomic and monetary policy frameworks.

Determinants of Bid-ask Spread in the Indian Government Securities Market

Liquidity measurement in financial markets has generated considerable attention in financial research. In this paper, the cost of liquidity is measured by computing the bid-ask spreads of liquid securities traded in the Indian government securities market, and is analysed with other liquidity measures. Overall, volatility is found to be the key variable impacting bid-ask spreads. Trading volume has a negative impact on spreads, although at a much smaller magnitude. Trade initiation and net liquidity appear to be smaller but significant drivers of spreads. Order imbalance and trade execution variables, analysed separately with the other variables, show divergent relationship with spreads.

Is Brexit Moment a Lehman Moment?

The Lehman moment is the moment when Lehman Brothers—one of the largest investment banks in the United States (US) at the time—collapsed. The collapse happened on 15 September 2008. Almost nobody disagrees that the Lehman moment has been the most important moment in the ongoing global financial...

Reforming the Risky Financial System

Other People's Money: The Real Business of Finance by John Kay; New York: Public Affairs, 2015; pp 352, $27.99 (hardcover).

Financial Sector Reforms

Financial Sector Reforms and India’s Economic Development by N A Mujumdar (two volumes); Academic Foundation, Delhi, 2002; pp 319 + 328, price not mentioned.

Inter-State Water Disputes Act 1956

The National Commission to Review the Working of the Constitution (NCRWC) has recommended the repeal of the Inter-State Water Disputes Act (ISWD Act) and the enactment of a new Act. Its recommendation is to bring river water disputes within the original and exclusive jurisdiction of the Supreme Court. This article argues that the repeal of the ISWD Act would be singularly ill-advised. Article 262 together with the ISWD Act represents a very good mechanism for dispute-resolution (as a last resort when negotiations fail) and it would be a great pity to dismantle it. There have been some deficiencies in the functioning of that mechanism; the amendments to the ISWD Act passed in early 2002 seek to remedy them and some further improvements are suggested here. The NCRWC is right in wanting to restore the jurisdiction of the Supreme Court, but it should be appellate jurisdiction.

Perfect Market Puzzles

With the problem of sovereign debt everyone seems to assume that someone else, often referred to as 'the market', has figured out the solution. But even in the face of mounting billions in default and growing coordination problems, it looks to us as if nothing of the sort has occurred. The mechanism of the invisible hand is magical indeed - when it operates at all. But its operation is not safe to assume. Not even under the best possible set of conditions.

WTO and Indian Banking Sector: The Road Ahead

Increasing globalisation of trade under the WTO has provided India with a new opportunity as well as a necessity to strengthen her efforts at reforming her domestic financial sector. The real issue before India is how to obtain the best deal for herself in the current round of negotiations while seeking to reform her financial sector. In this paper the authors have identified six major issues that will come up for consideration in this round of WTO negotiations and made recommendations for India's response strategy by appropriately drawing lessons from the global experience in the opening up of the banking sector.

Organisation of Regulatory Functions:A Single Regulator?

Since the beginning of the financial sector reforms in early 1990s, boundaries between products and intermediaries have been blurring rapidly. The entry of several large government-owned as well as non-governmental financial sector participants in a variety of related domains such as securities trading, investment banking, commercial and retail banking, insurance and asset management which are regulated by independent bodies has posed some unique supervisory challenges for the Indian financial system. The paper attempts to argue that such a system of regulation not only artificially fragments the financial markets but also exposes the system to the very real danger of participants behaving as mini-super-regulators as they seek to optimally allocate capital dynamically between these fragmented market
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