India’s credit growth and asset prices’ movements; Does the global financial cycle have a moderating role to play?

Resumen

This study examines the effect of the global financial cycle on different financial indicators of the Indian economy through experimental analysis. It detects evidence of a connection between contemporaneous changes in capital flows, asset prices, and credit growth, which are related to the Global Financial Cycle (GFCy). The evolution of the cycle is largely driven by the monetary policy decisions of the Federal Reserve, and existing studies have examined the influence of these decisions in different contexts. The current study experimentally examines the effect of the global financial cycle on credit growth and asset prices in India during the period 2010-2023. For the purpose of achieving its goals, the study utilizes advanced time-series econometric techniques, such as the Granger Causality Test, Vector Autoregression (VAR) methodology, and the Impulse Response Function (IRF) test. The outcomes show that the global financial cycle has significant effects on the stock market, as confirmed by the Granger causality and IRF findings.