Disentangling India's Investment Slowdown

19 Pages Posted: 10 Apr 2014

See all articles by Rahul Anand

Rahul Anand

International Monetary Fund (IMF)

Volodymyr Tulin

International Monetary Fund (IMF)

Date Written: March 2014

Abstract

This paper documents the recent slowdown in investment in India and explores its underlying causes. The sharp investment deceleration has sparked an intense debate about the role of interest rates, as well as business confidence and economic policy uncertainty. Our results suggest that while explaining aggregate investment activity better than nominal interest rates, real interest rates account for only one quarter of the explained investment downturn. In addition, standard macro-financial variables do not fully explain the recent investment slump. Using a new measure of economic policy uncertainty, the results suggest that heightened uncertainty and deteriorating business confidence have played a key role in the recent investment slowdown.

Keywords: Investment, India, Interest rates, Economic policy, Economic models, Investments, Policy Uncertainty., inflation, real interest rate, real interest rates, monetary policy, monetary fund, nominal interest rate, relative prices, nominal interest rates, money market interest rates, real rates, inflation rate, coefficient on inflation

JEL Classification: D80, D81, E22, E44, G18, L50

Suggested Citation

Anand, Rahul and Tulin, Volodymyr, Disentangling India's Investment Slowdown (March 2014). IMF Working Paper No. 14/47. Available at SSRN: https://ssrn.com/abstract=2423263

Rahul Anand (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Volodymyr Tulin

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
31
Abstract Views
461
PlumX Metrics