India’s credit growth and asset prices’ movements: Does the Global Financial Cycle have a moderating role to play?

Abstract

This research paper empirically investigates the impact of the Global financial cycle on the financial variables of Indian economy. Global Financial Cycle (GFCy) is related to the occurrence of simultaneous movements of capital flows, asset prices and credit growth. This cycle is driven by the monetary policy decisions of the Federal Reserve and the implications of the same has been examined in the existing literature in various forms. The present study empirically investigates the impact of the global financial cycle on the credit growth and asset prices of an Indian economy from 2010-to 2023. To achieve the study objective, the study applies advanced time-series econometrics methods such as the VAR approach, Granger Causality Test, and the IRF test (Impulse Response Function). The results show that, the global financial cycle has substantial impacts on the stock market and IRF, and granger causality results confirm it.