Inter-Linkages, Co-Integration and Global Financial Crisis: India's Experience and Preparedness

22 Pages Posted: 24 Nov 2012

See all articles by Vanita Tripathi

Vanita Tripathi

University of Delhi India - Delhi School of Economics - Department of Commerce

Ritika Seth

Hansraj College, University of Delhi

Mohit Kumar

affiliation not provided to SSRN

Date Written: September 30, 2012

Abstract

This paper examines the inter-linkages and long run integration of Indian economy with other economies of the world (US, Europe, Other Emerging markets and World economy) using standard indices of MSCI over the period Jan 2003 to July 2012. We also investigate Indian economy’s response to recent global turbulence (i.e. US subprime crisis and European Debt crisis) and its preparedness to counter global shocks. We use Granger causality test, Johansen co-integration test and Impulse response analysis of Vector auto regression framework to test various hypotheses. We find contagion effect on Indian economy. Although post US subprime crisis there is no observed causal relationship between India and other economies, but post European debt crisis, the Indian economy is granger caused by all other economies. Further during pre US subprime crisis period, India did have a long term co-integrating relationship with all other economies but this co integration almost disappeared in post US subprime crisis as well as post European debt crisis period. This low level of co integration despite the presence of short run causal relationship shows that global shocks might destabilize Indian economy in long run. Especially, Impulse response analysis revealed that Indian economy seems to be immune from the shocks created in the other economies of the world for atleast first two months and negative effects appear after that only. These results have important policy implications. The policy makers need to understand that if domestic economic fundamentals of India are in order, then global shocks have very less destabilizing effect on Indian economy.

Keywords: global financial crisis, Inter linkages, Granger Causality, Johansen Co integration test, Impulse Response analysis, US subprime crisis, European debt crisis

JEL Classification: G10, G11, G14, G15

Suggested Citation

Tripathi, Vanita and Seth, Ritika and Kumar, Mohit, Inter-Linkages, Co-Integration and Global Financial Crisis: India's Experience and Preparedness (September 30, 2012). Available at SSRN: https://ssrn.com/abstract=2179896 or http://dx.doi.org/10.2139/ssrn.2179896

Vanita Tripathi

University of Delhi India - Delhi School of Economics - Department of Commerce ( email )

Department of Commerce
Delhi University
Delhi, 110007
India

HOME PAGE: http://people@du.ac.in~vtripathi/

Ritika Seth (Contact Author)

Hansraj College, University of Delhi ( email )

New Delhi, DE
India

Mohit Kumar

affiliation not provided to SSRN

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
83
Abstract Views
605
rank
331,326
PlumX Metrics