“ India is  a great economy now, we are posed to lead the world into the next century and regain our golden bird status. W...
INDIA AND THE DECOUPLING HYPOTHESIS<br />
INTRODUCTION<br />GREATER INTEGRATION WITH THE WORLD <br />TRADE AND SERVICES HAVE  AMALGAMATED<br />FINANCIAL INTEGRATION...
INTRODUCTION<br />INTEGRATION WITH BUSINESS CYCLE SYNCHRONISATION ? <br />ARE WE FOOTLOSE AND ON OUR OWN ?<br />HIGH ECONO...
INTRODUCTION<br />INCREASING TRADE INTENSITY-BUSINESS CYCLE SYNCHRONISATION<br />NO THEORY OR CONSENSUS ON DEVELOPING NATI...
INTRODUCTION<br />EARLIER STUDIES – INCREASED SYNCHRONISATION<br />RECENT STUDIES REVEAL A MIXED TREND<br />SOME FIND INCR...
INTRODUCTION<br />ANECDOTAL EVIDENCE FOR INDIA<br />SYSTEMATIC EVIDENCE IS LIMITED<br />WE WILL LOOK AT BOTH SIDES OF THE ...
THE DECOUPLING HYPOTHESIS<br />WHAT DOES IT IMPLY<br />REASONS TO SAY YES<br />CONTENTS<br />REASONS TO SAY NO<br />WHAT I...
THE HYPOTHESIS<br />
DECOUPLING HYPOTHESIS<br />The decoupling hypothesis is the idea that business cycles in emerging market economies have be...
HYPOTHESIS<br />ECONOMIES OF WORLD ARE INDEPENDENT OF EACH OTHER<br />TROUBLES IN WEST MIGHT PROVE TO BE ADVANTAGEOUS FOR ...
HYPOTHESIS<br />THE BUBBLE WAS FORMING<br />STOCK MARKETS ROSE RAPIDLY<br />INCREASED PARTICIPATION OF MIDDLE CLASS IN STO...
HYPOTHESIS<br />STOCK MARKET BUBBLES TEND TO BE SELF CONTAINED <br />CREDIT BUBBLES LEAD TO A ‘DOMINO EFFECT’<br />DECOUPL...
HYPOTHESIS<br />INDIAN STOCK MARKET ON A STEADY DECLINE<br />FLIGHT OF FOREIGN CAPITAL<br />FOREIGN BANKS STARTED PRESERVI...
“When liquidity dries up, it doesn’t matter where you are” JamshidPandole<br />
REASONS TO SUPPORT OR REJECT THE HYPOTHESIS<br />
REASONS FOR SAYING “YES”<br />EMERGING ECONOMIES COULD BE ‘DE-LINKING’ FROM THE <br />DOMINANT ECONOMIES<br />INCREASED IM...
REASONS FOR SAYING “YES”<br />Cont…<br />INDIAN RURAL ECONOMY STRONG ENOUGH<br />STRENGTH OF RURAL ECONOMY- PRIMARY CAUSE ...
ROBUST INDIAN FINANCIAL SYSTEM<br />SAVINGS RATE<br />LOW HOUSEHOLD DEBT<br />WILLINGNESS TO TAKE FISCAL CONSOLIDATION<br ...
REASONS FOR SAYING “NO”<br />IN 1990’s PRIVATE CONSUMPTION 67% OF GDP,SHARE OF EXPORTS 9% AS <br />COMPARED TO 59% & 24.5%...
REASONS FOR SAYING “NO” cont…<br />SHARE OF MANUFACTURED EXPORTS ROSE FROM 27.1%(1990-91) <br />TO 52.2%(2000-01) & FURTHE...
BUSINESS  CYCLE  AND  ITS     SYNCHRONISATION<br />
BUSINESS CYCLE<br />
BUSINESS CYCLE THEORIES<br />KEYNESIAN THEORY<br />REAL BUSINESS CYCLE THEORY<br />POLITICAL BUSINESS CYCLE THEORY<br />
BUSINESS CYCLE<br />
BUSINESS CYCLE SYNCHRONISATION<br />DEMAND CHANNEL- DEMAND SHOCKS IN ONE ECONOMY LEAD TO INCOME <br />                    ...
GRAPHICAL AND STATISTICAL TESTING OF HYPOTHESIS<br />
EXPLAINATION  OF TERMS<br />TREND-trend of the GDP<br />output gap of each country- output gaps represent business cycles ...
GRAPHICAL METHOD<br />Hence Euclidean distance takes into account the difference in amplitude and thus offers an innovativ...
ECONOMETRIC EVIDENCE<br />SERIES OF REGRESSION USING THREE VARIABLES<br />EMERGING MARKET OUTPUT GAP, ADVANCED MARKET<br /...
ECONOMETRIC METHOD OF TESTING<br />
TESTING RESULTS<br />BOTH GRAPHICAL AND ECONOMETRIC TESTING POINT TO A GREAT EXTENT OF COUPLING WITH THE WORLD ECONOMY<br ...
THE VERDICT<br />
GROUPS MANDATE<br />                        PROVE OR DISPROVE THE HYPOTHESIS<br />                STUDY THE BUSINESS CYCLE...
CONCLUSION<br />                          DECOUPLING HYPOTHESIS –A MYTH<br />   PRUDENCE OF OUR POLICY MAKERS AND CENTRAL ...
TRIPARTITE BLOW<br />HIGH INTERST RATES<br />                                        INFLATION<br />                      ...
GROWTH SNUBBED<br /> IIP FIGURES AT<br /> 5.6% ARE AT THEIR LOWEST IN 9 MONTHS<br />
RECOMMENDATIONS<br />                TREAD CAREFULLY ON INTEREST RATE HIKES <br />   MONETARY POLICY ALONE WILL NOT CONTRO...
RECOMMENDATIONS<br />                 REDUCE DEPENDENCE ON IMPORTED OIL<br />        STEM OUT CORRUPTION-BLACK MONEY DILLE...
“ India is  a great economy now, we are posed to lead the world into the next century and regain our golden bird status. W...
50<br />
STOCK MARKET RETURNS OF INDIA Vs EMERGING ECONOMIES<br />Emerging Markets are shown by the green line, the USA by the blue...
BUSINESS CYCLE<br /> PERIODS OF EXPANSION AND CONTRACTION<br />PEAK REFERS TO ECONOMIC EXPANSION<br />TROUGH RELATES TO EC...
The growth of the Indian economy has become more tightly correlated to world growth in the last decade. While the correlat...
THE TEST FOR DECOUPLING – THE GLOBAL CRISIS        2008<br />EVIDENT FINANCIAL & COMMERCIAL INTERDEPENDANCY BETWEEN <br />...
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India and decoupling hyposthesis

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puts everything into one ppt to study the great decoupling hypothesis

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  • The second approach of testing is the econometric evidence of the decoupling hypothesis. The procedure consisted of a series of regressions that included three variables for each regression; the EM output gap, the AM output gap and a dummy variable which was constructed to check for a structural break during a sub-sample of recent years (2000-2007).Consequently each regression provided with three variables, the intercept α (alpha) and two coefficients β (beta) and γ (gamma), for each year within the sub-sample tested for a structural break. The gammas are a direct test of the decoupling hypothesis provided that they are statistically significant.Thus when the coefficient gamma is negative, there is lower degree of business cycle interdependence between the tested countries/groups and decoupling hypothesis is confirmed.
  • India and decoupling hyposthesis

    1. 1. “ India is a great economy now, we are posed to lead the world into the next century and regain our golden bird status. We will walk alone and show the world that …... We are the best”<br />ChoudharyNathu Ram<br />
    2. 2.
    3. 3. INDIA AND THE DECOUPLING HYPOTHESIS<br />
    4. 4. INTRODUCTION<br />GREATER INTEGRATION WITH THE WORLD <br />TRADE AND SERVICES HAVE AMALGAMATED<br />FINANCIAL INTEGRATION IS VISIBLE<br />
    5. 5. INTRODUCTION<br />INTEGRATION WITH BUSINESS CYCLE SYNCHRONISATION ? <br />ARE WE FOOTLOSE AND ON OUR OWN ?<br />HIGH ECONOMIC GROWTH - DECOUPLED<br />
    6. 6. INTRODUCTION<br />INCREASING TRADE INTENSITY-BUSINESS CYCLE SYNCHRONISATION<br />NO THEORY OR CONSENSUS ON DEVELOPING NATIONS<br />DECOUPLING – THE GREAT DEBATE<br />DIVERGENT PERFORMANCE OF ECONOMIES IN 2008 ECONOMIC CRISIS <br />EVERYONE SEEMS TO BE TALKING ABOUT DECOUPLING<br />
    7. 7. INTRODUCTION<br />EARLIER STUDIES – INCREASED SYNCHRONISATION<br />RECENT STUDIES REVEAL A MIXED TREND<br />SOME FIND INCREASED CORRELATION<br />OTHERS FAVOUR DECOUPLING<br />
    8. 8. INTRODUCTION<br />ANECDOTAL EVIDENCE FOR INDIA<br />SYSTEMATIC EVIDENCE IS LIMITED<br />WE WILL LOOK AT BOTH SIDES OF THE COIN : WHICH SIDE IS THE TOAST<br /> BUTTERED<br />GRAPHICAL ,STATISTICAL ,ECONOMETRIC DATA TO PROVE/DISPROVE <br />THE HYPOTHESIS<br />
    9. 9. THE DECOUPLING HYPOTHESIS<br />WHAT DOES IT IMPLY<br />REASONS TO SAY YES<br />CONTENTS<br />REASONS TO SAY NO<br />WHAT IS A BUSINESS CYCLE<br />BUSINESS CYCLE SYNCHRONISATION<br />TESTING THE HYPOTHESIS<br />CONCLUSION<br />
    10. 10. THE HYPOTHESIS<br />
    11. 11. DECOUPLING HYPOTHESIS<br />The decoupling hypothesis is the idea that business cycles in emerging market economies have become more independent from business cycles in advanced economies in recent years. Decoupling essentially amounts to a structural break in the degree of business cycle interdependence between the two groups of economies<br />
    12. 12. HYPOTHESIS<br />ECONOMIES OF WORLD ARE INDEPENDENT OF EACH OTHER<br />TROUBLES IN WEST MIGHT PROVE TO BE ADVANTAGEOUS FOR INDIA<br />OUTSOURCING OF SERVICES<br /> ONLY 22% OF INDIA’s ECONOMY IS EXPORT RELATED<br />INDIA’s GROWTH RATE OF 9-10% REFLECTS THRIVING DOMESTIC ECONOMY<br />EMERGING MIDDLE CLASS<br />
    13. 13. HYPOTHESIS<br />THE BUBBLE WAS FORMING<br />STOCK MARKETS ROSE RAPIDLY<br />INCREASED PARTICIPATION OF MIDDLE CLASS IN STOCK MARKETS<br />MUTUAL FUND INDUSTRY BOOMED FROM $5 BILLION TO $40 BILLION<br />SKYROCKETING PRICES OF REAL ESTATE<br />
    14. 14. HYPOTHESIS<br />STOCK MARKET BUBBLES TEND TO BE SELF CONTAINED <br />CREDIT BUBBLES LEAD TO A ‘DOMINO EFFECT’<br />DECOUPLING THEORY MIGHT HAVE HELD UP IN CASE OF JUST <br />STOCK MARKET BUBBLE<br />
    15. 15. HYPOTHESIS<br />INDIAN STOCK MARKET ON A STEADY DECLINE<br />FLIGHT OF FOREIGN CAPITAL<br />FOREIGN BANKS STARTED PRESERVING THEIR OWN CAPITAL<br />GETTING LOANS FROM OUTSIDE HAVE BECOME DIFFICULT<br />INDIAN ECONOMY HAS SLOWED DOWN<br />
    16. 16. “When liquidity dries up, it doesn’t matter where you are” JamshidPandole<br />
    17. 17. REASONS TO SUPPORT OR REJECT THE HYPOTHESIS<br />
    18. 18. REASONS FOR SAYING “YES”<br />EMERGING ECONOMIES COULD BE ‘DE-LINKING’ FROM THE <br />DOMINANT ECONOMIES<br />INCREASED IMMUNITY FROM IMPACT OF AN ECONOMIC DOWN - TURN<br />PICKING UP OF ECONOMIC GROWTH IN INDIA<br />STRONG COMPLIMENTARITY BETWEEN EXPORTERS OF MANUFACTURING <br />GOODS AND PRIMARY GOODS<br />
    19. 19. REASONS FOR SAYING “YES”<br />Cont…<br />INDIAN RURAL ECONOMY STRONG ENOUGH<br />STRENGTH OF RURAL ECONOMY- PRIMARY CAUSE OF <br />DECOUPLING<br />SMALLER EXPORT SECTOR RELATIVELY LESS RELIANT<br />INDIA TOWARDS MIGRATION<br />
    20. 20. ROBUST INDIAN FINANCIAL SYSTEM<br />SAVINGS RATE<br />LOW HOUSEHOLD DEBT<br />WILLINGNESS TO TAKE FISCAL CONSOLIDATION<br />LOW FUNDING COST FOR HUGE INVESTMENT<br />AVAILABILITY OF EQUITY AND DEBT FUNDING<br />STRONG CONSUMPTION OVER THE NEXT DECADE <br />
    21. 21. REASONS FOR SAYING “NO”<br />IN 1990’s PRIVATE CONSUMPTION 67% OF GDP,SHARE OF EXPORTS 9% AS <br />COMPARED TO 59% & 24.5% OF GDP IN 2008-09<br />EVERY 1% DECLINE IN WORLD GDP GROWTH LEADS TO AROUND 3.71% <br />DECLINE IN INDIAN EXPORTS <br />INCREASED BUSINESS CYCLE SYNCHRONISATION OF INDIAN ECONOMY<br /> WITH THE DEVELOPED WORLD<br />EVERY 1% DECLINE IN WORLD GDP RESULTED IN 4% DECLINE IN INDIAN <br />SOFTWARE EXPORTS<br />
    22. 22. REASONS FOR SAYING “NO” cont…<br />SHARE OF MANUFACTURED EXPORTS ROSE FROM 27.1%(1990-91) <br />TO 52.2%(2000-01) & FURTHER TO 72.3% (2008-09) <br />THE SERVICES EXPORT TO GDP RATIO ROSE FROM 3.2%(1990-91) TO <br />15.1% (2008-09) <br />IN 2008-09, EXPORTS PLUS IMPORTS OF GOODS & SERVICES FORMED <br />AT LEAST HALF OF THE GDP<br />SHARE OF FDI IN INVESTMENT INCREASED FROM 7% IN 2007 TO 8% IN 2008<br />
    23. 23. BUSINESS CYCLE AND ITS SYNCHRONISATION<br />
    24. 24.
    25. 25. BUSINESS CYCLE<br />
    26. 26. BUSINESS CYCLE THEORIES<br />KEYNESIAN THEORY<br />REAL BUSINESS CYCLE THEORY<br />POLITICAL BUSINESS CYCLE THEORY<br />
    27. 27. BUSINESS CYCLE<br />
    28. 28. BUSINESS CYCLE SYNCHRONISATION<br />DEMAND CHANNEL- DEMAND SHOCKS IN ONE ECONOMY LEAD TO INCOME <br /> SHOCKS IN ITSTRADING PARTNERS <br />BUSINESS CYCLE CONVERGENCE<br />FINANCIAL MARKETS LINKAGES AND CONTAGION<br /> INCREASED FINANCIAL INTEGRATION SYNCHRONIZES CAPITAL FLOW<br />MONETARY POLICY IS A CHANNEL FOR COMOVEMENT BETWEEN COUNTRIES<br />
    29. 29. GRAPHICAL AND STATISTICAL TESTING OF HYPOTHESIS<br />
    30. 30.
    31. 31. EXPLAINATION OF TERMS<br />TREND-trend of the GDP<br />output gap of each country- output gaps represent business cycles for a country. The output gap = (nominal GDP-trend GDP)/trend GDP<br />Euclidean distance : Euclidean distance equals to the absolute value of the difference between the output gap of the emerging-market economy (either individually or as a group) and the output gap of a group of advanced-market economies<br />
    32. 32. GRAPHICAL METHOD<br />Hence Euclidean distance takes into account the difference in amplitude and thus offers an innovative way of measuring synchronization. When Euclidean distance equals to zero, the business cycles are perfectly synchronized. Any other value (positive due to absolute sign) means imperfect synchronization and therefore the larger the distance, the larger the business cycle interdependence.<br />
    33. 33.
    34. 34. ECONOMETRIC EVIDENCE<br />SERIES OF REGRESSION USING THREE VARIABLES<br />EMERGING MARKET OUTPUT GAP, ADVANCED MARKET<br /> OUTPUT GAP & DUMMY VARIABLE<br />INTERCEPT (ALPHA), TWO COEFFICIENTS (BETA) & (GAMMA)<br />NEGATIVE GAMMA CONFIRMS DECOUPLING HYPOTHESIS<br />
    35. 35. ECONOMETRIC METHOD OF TESTING<br />
    36. 36. TESTING RESULTS<br />BOTH GRAPHICAL AND ECONOMETRIC TESTING POINT TO A GREAT EXTENT OF COUPLING WITH THE WORLD ECONOMY<br />SOME PARAMETERS SHOWED A SLIGHT DECOUPLING FROM THE US ECONOMY<br />
    37. 37. THE VERDICT<br />
    38. 38. GROUPS MANDATE<br /> PROVE OR DISPROVE THE HYPOTHESIS<br /> STUDY THE BUSINESS CYCLE SYNCHRONISATION<br />CHECK THE DIVERGENCE OF OUR GROWTH PATH<br />
    39. 39.
    40. 40.
    41. 41.
    42. 42.
    43. 43. CONCLUSION<br /> DECOUPLING HYPOTHESIS –A MYTH<br /> PRUDENCE OF OUR POLICY MAKERS AND CENTRAL BANKER<br />DECOUPLED -WORLD BANKING SYSTEM TO A GREAT EXTENT <br />THIS SELECTIVE RISK AVERSION SAVED US<br />
    44. 44. TRIPARTITE BLOW<br />HIGH INTERST RATES<br /> INFLATION<br /> MANAGEMENT OF FOREX<br />
    45. 45. GROWTH SNUBBED<br /> IIP FIGURES AT<br /> 5.6% ARE AT THEIR LOWEST IN 9 MONTHS<br />
    46. 46.
    47. 47. RECOMMENDATIONS<br /> TREAD CAREFULLY ON INTEREST RATE HIKES <br /> MONETARY POLICY ALONE WILL NOT CONTROL INFLATION<br /> REMOVE SUPPLY SIDE BOTTLENECKS<br /> IMPROVE INFRASTRUCTURE BY 200%<br />
    48. 48. RECOMMENDATIONS<br /> REDUCE DEPENDENCE ON IMPORTED OIL<br /> STEM OUT CORRUPTION-BLACK MONEY DILLEMA<br />IMPROVE FARM PRODUCTIVITY-WEAN SUBSIDIES GRADUALLY<br />
    49. 49. “ India is a great economy now, we are posed to lead the world into the next century and regain our golden bird status. We will walk alone and show the world that …... We are the best”<br />ChoudharyNathu Ram<br />
    50. 50. 50<br />
    51. 51.
    52. 52. STOCK MARKET RETURNS OF INDIA Vs EMERGING ECONOMIES<br />Emerging Markets are shown by the green line, the USA by the blue line, and non-US developed stock markets by the orange line<br />
    53. 53.
    54. 54.
    55. 55.
    56. 56.
    57. 57.
    58. 58. BUSINESS CYCLE<br /> PERIODS OF EXPANSION AND CONTRACTION<br />PEAK REFERS TO ECONOMIC EXPANSION<br />TROUGH RELATES TO ECONOMIC DECLINE<br />
    59. 59.
    60. 60. The growth of the Indian economy has become more tightly correlated to world growth in the last decade. While the correlation was 0.43 in the1980s and 0.59 in the 1990s, the slow and steady opening up of the economy led to an increase in this correlation to 0.92 during the period 2001-08<br />
    61. 61. THE TEST FOR DECOUPLING – THE GLOBAL CRISIS 2008<br />EVIDENT FINANCIAL & COMMERCIAL INTERDEPENDANCY BETWEEN <br />INDIA & US<br />INDIRECT EFFECT OF SUB PRIME CRISIS IN FORM OF LARGE <br />CAPITAL OUTFLOWS <br />TIGHTENING OF LIQUIDITY IN DOMESTIC MARKETS & CONSTRAINTS IN <br />ACCESS TO EXTERNAL FINANCING <br />DROP IN US DEMAND LED TO AN END TO EXPORT DRIVEN GROWTH &<br /> DISRUPTION OF INTRA ASIAN TRADE<br />
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