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Impact of U.S. Federal Interest Rate and Movement of MSCI on Indian Capital Markets

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  • Bharat Chadha

Abstract

The relationship between Indian macro-economic factors and economic growth has been analyzed by a number of empirical studies. This paper re-examines the sources of variability in the Indian economy for January 2000 to September 2006. The paper empirically investigates the relationship of global factors such as U.S. federal interest rate and Morgan Stanley Capital Index (All country) with the Indian economy. It examines the following hypothesis: i) Whether Indian capital market is affected by a shock in U.S federal interest rate; ii) whether Indian capital market is affected by a shock in the world capital markets; iii) and if Indian economy is affected by a shock in the world capital markets. VAR is constructed and impulse response functions as well as variation decomposition method are employed to deduce these shocks.

Suggested Citation

  • Bharat Chadha, 2007. "Impact of U.S. Federal Interest Rate and Movement of MSCI on Indian Capital Markets," Working Papers id:1024, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:1024
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    References listed on IDEAS

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    1. Peter Blair Henry, 2003. "Capital-Account Liberalization, the Cost of Capital, and Economic Growth," American Economic Review, American Economic Association, vol. 93(2), pages 91-96, May.
    2. Vipul Bhatt & Arvind Virmani, 2005. "Global integration of India's Money Market : Interest rate parity in India," Indian Council for Research on International Economic Relations, New Delhi Working Papers 164, Indian Council for Research on International Economic Relations, New Delhi, India.
    3. Yunus Aksoy & Miguel A. Leon-Ledesma, 2004. "Interest Rates and Output in the Long Run," Money Macro and Finance (MMF) Research Group Conference 2004 92, Money Macro and Finance Research Group.
    4. Jeffery D. Amato & Andrew Filardo & Gabriele Galati & Goetz von Peter & Feng Zhu, 2005. "Research on exchange rates and monetary policy: an overview," BIS Working Papers 178, Bank for International Settlements.
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