Does inflation affect asymmetrically to financial development in India? Fresh insights based on NARDL approach
International Journal of Social Economics
ISSN: 0306-8293
Article publication date: 4 September 2023
Issue publication date: 21 March 2024
Abstract
Purpose
This study examines the possibility of asymmetric impact of inflation on the financial development (FD) in the case of Indian economy from 1980 to 2020. Moreover, the finance–growth hypothesis is also tested.
Design/methodology/approach
The authors incorporated the “Nonlinear Autoregressive Distributed Lag” (NARDL) model due to Shin et al. (2014) to investigate the asymmetric impact of inflation on financial development. Asymmetric cumulative dynamic multipliers are also used to track the traverse of any short-run distortion towards the long-run cointegration.
Findings
The results revealed that inflation impacts the financial development negatively whereas the economic growth (EG) and trade openness have a positive effect. However, the effect of inflation on financial development is not symmetric. Moreover, the findings support the demand-led growth hypothesis.
Originality/value
To the best of the authors' knowledge, this is the first study examining the asymmetric effects of inflation on financial development in the Indian context. In addition, instead of using a single proxy to measure financial development, an index for financial development encompassing different aspects of the financial system has been incorporated.
Peer review
The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-02-2023-0094
Keywords
Citation
Dar, M.H. and Nain, M.Z. (2024), "Does inflation affect asymmetrically to financial development in India? Fresh insights based on NARDL approach", International Journal of Social Economics, Vol. 51 No. 4, pp. 515-529. https://doi.org/10.1108/IJSE-02-2023-0094
Publisher
:Emerald Publishing Limited
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