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Impact of cryptos on the inflation volatility in India: an application of bivariate BEKK-GARCH models

Author

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  • Shailesh Rastogi
  • Jagjeevan Kanoujiya

Abstract

Purpose - The main aim of the study is to explore the volatility spillover effect of cryptocurrencies (Bitcoin, Ethereum and Litecoin) on inflation volatility in India. Design/methodology/approach - A popular tool, the Bivariate GARCH model (BEKK-GARCH), to study the volatility spillover effect, is applied in the study. Monthly data of cryptocurrencies and inflation (WPI and CPI indices) are gathered from 2015 to 2021. Findings - Significant short-term responsiveness of volatility of cryptocurrencies on the inflation volatility is found. In addition to this, the significant volatility spillover effect from the cryptocurrencies to the inflation volatility is found. Practical implications - The findings of the current paper can be of use for inflation management, target inflation policies and policies to contain the volatility of cryptocurrencies. The significance of the current paper is relevant as governments worldwide are officially recognizing cryptocurrencies and starting the process of launching their official virtual currency. Originality/value - No other study is observed on the topic. Hence, the contribution and novelty of the findings of the current paper are very high andaddvalue to the nonexistent literature on the topic. Lack of the number of inflation observations (data of CPI and WPI are available only in monthly frequency) crimps the model estimation. As the cryptocurrencies become old, more data points will be available by design, and such problems can be resolved, and better model estimation may be possible.

Suggested Citation

  • Shailesh Rastogi & Jagjeevan Kanoujiya, 2022. "Impact of cryptos on the inflation volatility in India: an application of bivariate BEKK-GARCH models," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 40(2), pages 221-237, January.
    • Handle: RePEc:eme:jeaspp:jeas-08-2021-0167
    DOI: 10.1108/JEAS-08-2021-0167
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    More about this item

    Keywords

    Cryptocurrency; Inflation; Volatility; Spillover effect; GARCH; E21; E22; E31; E43; E44; E52;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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