Divy Rangan and Lekha Chakraborty
We analysed the macroeconomic policy responses to COVID-19 pandemic and the impact of the pandemic on economic growth, and the level of consumption. The COVID-19 crisis is a dual crisis - public health crisis and a macroeconomic crisis. The policy responses to this crisis have been a 'life versus livelihood' sequencing and the findings are such that global cooperation, and domestic macroeconomic policies complementing with exit strategy to solve the economic disruptions in supply chains can be helpful.
This paper attempts to investigate how changes in policy rates affect the transmission of monetary policy through the bank lending channel in India while also taking into consideration the roles played by differences in bank ownership, economic period and bank size. We specifically focus on the implementation of monetary policy through the use of the Weighted Average Call Rate (WCR) as a policy tool with frequent adjustments. Using an unbalanced panel dataset consisting of 701 observations for Indian scheduled commercial banks for the period 2000-2019, we examine the reaction of loan supply to changes in the WCR while taking into account controls such as liquidity, capitalization and size. We find that loan supply is adversely affected by a change in WCR and hence, we support the view that it is an effective monetary policy instrument. Secondly, we find that banks of all ownership types as well as sizes reduce loan supply during a contractionary policy period. Thirdly, loan supply is reduced during a rate cut in the crisis and post crisis periods. Therefore, our results support the existence of a bank lending channel in India through the use of WCR.
K G Sahadevan
The debate on the direction and extent of association between growth and structural change has not yet concluded decisively. It is of greater relevance to countries like India, which seek to achieve inclusive growth while services sector continues to be the major engine of growth. The present paper intends to offer some insights, theoretical as well as empirical, into this debate in the Indian context. The evidence from state level data shows that structural change, as measured by NAV index and Modified Lilien index, has not only moved along with output growth, but has also contributed to its resilience. This finding is further strengthened by the evidence of unidirectional Granger causality running from structural change to growth. In view of this, it is argued that higher growth the economy has been experiencing since mid-1980s might be attributed to structural change.
One of the most pervasive of human desires is to imitate others. Although innumerable everyday situations exist, emulation is particularly prominent in the financial realm. As illustrated by Keynes in his famous "beauty contest" example where he drew an analogy between professional investment and those newspaper competitions in which each competitor has to pick, not those which he himself finds prettiest, but those which he thinks the other competitors would like. "Herd behaviour" specifically refers to the phenomenon of everyone doing what everyone else is doing, even though their private information would suggest otherwise. Resource constraints often make it rational to free-ride on the private information of others. A negative information externality arises because each person's decision becomes less responsive to his own information. Inefficient information aggregation would result in market failure. This paper analyses the theoretical justifications that have been given in the literature on herding. It highlights the more recent move in which herding has been seen as a rational response as opposed to the conventional thinking which took such behaviour as representing deviations from rationality. Important lessons emerge for the Indian banking system as we trace the theoretical literature on the issue and global experience of financial fragility and crises causes by herding.
Good Economics for Hard Times
Abhijit V. Banerjee and Esther Duflo
New Delhi, Juggernaut Books, 2019, 402 pp, Rs 699.00
Reviewed by Dr Santosh Kumar, Assistant Professor, Shri Ram College of Commerce, University of Delhi, Maurice Nagar, Delhi, India.