Implication of global financial cycle on emerging market economies : evidence from India

In this paper, we examine how the global financial cycle is translated into domestic financial cycle across different financial assets comprising equity prices, credit, and leverage for India. Using quarterly data from 1990 to 2021, we find that 'risk-taking channel' transfers global financial cycle into domestic economy which manifests itself through equity prices, credit, and leverage; however, Indian housing cycle seems resilient to the global housing cycle. In this context, macroprudential policies might be employed to limit the risk-taking channel and hence reduce palpability of domestic economy to the global financial cycle.