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Liberalization and India’s Business Cycle Synchronization with the US

Author

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  • PAUL, BIRU PAKSHA

    (State University of New York at Cortland)

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.

Suggested Citation

  • Paul, Biru Paksha, 2010. "Liberalization and India’s Business Cycle Synchronization with the US," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 45(1), pages 159-182.
    • Handle: RePEc:dse:indecr:0019
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    Cited by:

    1. Biru Paksha Paul, 2013. "Output Relationships in South Asia: Are Bangladesh and India Different from Neighbours?," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 14(1), pages 35-57, March.

    More about this item

    Keywords

    Liberalization; Business Cycle Synchronization; Indian Economy; Monetary and Trade Channels; Impulse Response and Variance Decomposition;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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