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Does global spillover matter in the Indian money market? A vector error correction model

Author

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  • Avijit Bakshi
  • Pujari Sudharsana Reddy

Abstract

This study investigates the impact of transmission channels, including global liquidity, confidence, and exchange, on the Indian money market. The research aims to identify the predominant transmission channel and its influence on the repo and call money rates. A vector error correction model (VECM) analysed weekly data collected from the Reserve Bank of India, Bank of St. Louis, and Federal Reserve Bank from 29 April 2001 to 21 March 2021. The study finds a stable, genuine long-term relationship between call money rates and global liquidity, confidence channels and exchange channels. A long-run causality is also observed between call money rates and broad market indicators. Repo rates similarly exhibit a long-term, stable relationship with these factors, with short-term impacts observed from global liquidity and the exchange channel, but not from the VIX. The exchange channel and VIX are proven to be more predominant in influencing policy and call money rates.

Suggested Citation

  • Avijit Bakshi & Pujari Sudharsana Reddy, 2025. "Does global spillover matter in the Indian money market? A vector error correction model," International Journal of Indian Culture and Business Management, Inderscience Enterprises Ltd, vol. 34(1), pages 113-133.
    • Handle: RePEc:ids:ijicbm:v:34:y:2025:i:1:p:113-133
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