Liberalization and India’s Business Cycle Synchronization with the US

Biru Paksha ()
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Biru Paksha: State University of New York at Cortland, USA, Postal: Department of Economics, State University of New York at Cortland, USA

Indian Economic Review, 2009, vol. 44, issue 2, 275-298

Abstract: In the wake of India’s liberalization since the early 1990s, the country’s monetary and trade integration with the leading economy, the US, has increased more than ever before. While literature on whether financial integration leads to greater business cycle synchronization is ambiguous, this study finds that India’s business cycle has increasingly been synchronized with the US counterpart as liberalization has intensified over time. Since US output fluctuations are arguably exogenous to India, this synchronization, as estimated in impulse responses, variance decompositions, correlations, and GARCH models, can be viewed as business cycle transmission from the US to India. The pattern of movements in monetary, trade, and output variables based on gradually improving openness suggests that India’s augmenting business cycle synchronization with the US is mainly attributable to the channels of trade and monetary policy.

Keywords: Liberalization; Business Cycle Synchronization; Indian Economy; Monetary 6and Trade Channels; Impulse Response and Variance Decomposition (search for similar items in EconPapers)
JEL-codes: E32 E52 F15 F41 (search for similar items in EconPapers)
Date: 2009
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