Lights out? COVID-19 containment policies and economic activity
with Robert C.M. Beyer and Tarun Jain
This paper estimates the impact of a differential relaxation of COVID-19 containment policies on aggregate economic activity in India. Following a uniform national lockdown, the Government of India classified all districts into three zones with varying containment measures in May 2020. Using a differences-in-differences approach, we estimate the impact of these restrictions on nighttime light intensity, a standard high-frequency proxy for economic activity. To conduct this analysis, we combine pandemic-era district-level data from a range of novel sources -- monthly nighttime lights from global satellites, Facebook's mobility data from individual smartphone locations, and high-frequency household-level survey data on income and consumption, supplemented with data from the Indian Census and the Reserve Bank of India. We find that nighttime light intensity in May was 12.4% lower for districts with the most severe restrictions and 1.7% lower for districts with intermediate restrictions, as compared to districts with the least restrictions. The differences were largest in May, when the different policies were in place, and slowly tapered in June and July. Restricted mobility and lower household income are plausible channels for these results. Stricter containment measures had larger impacts in districts with greater population density with older residents, as well as more services employment and bank credit.
Transmission of macroprudential regulations and capital controls
This paper estimates the transmission of macroprudential regulations and cross-border capital flow measures to loan supply of scheduled commercial banks and firm borrowings in India. Since 2002, Reserve Bank of India has enacted a series of prudential regulations to manage bank credit supply to various sectors. I construct indices of the regulatory tools announced by RBI to study the responsiveness of bank loans and firm debt using a fixed effect panel framework. The study combines three datasets - quarterly supervisory bank balance sheet information, detailed prudential regulations and borrowings of non-financial firms. Results indicate that aggregate bank lending declines by 11% in response to 1% increase in macroprudential measures in the same quarter and the transmission effect diminishes over four quarters. Bank capital is the primary channel through which prudential regulations transmit to loan supply. Larger banks, with greater capital, and publicly owned are more responsive to the transmission of prudential measures. Interaction between the interest rate channel of monetary policy and macroprudential regulations do not reinforce each other over a four-quarter horizon in the Indian scenario. Banks tend to lend more to more solvent firms in response to an increase in macroprudential regulations, regardless of bank capitalisation.
Current account balances & non-financial corporate savings
with Purna Banerjee
As non-financial corporate sector savings tend to increase globally, its effect on the current account balance assumes particular significance for macro-financial stability. This study investigates the relationship between current account balance and (non-financial) corporate savings for a panel of developed and developing countries. Using a system GMM model, we find that the average current account increases by 0.32% when non-financial corporate savings increase by 1%. Our results are robust to controlling for household sector and government net savings. While the nature of relationship varies across developed versus developing economies, we find that outward flow of FDI and net investment income are plausible channels through which the non-financial corporate savings impact a country's current account, where corporate savings are affected more by their own income effect compared to a relative price effect. A country's demographic characteristics and currency strength are important determinants driving this relationship.