IMPACT OF MACRO ECONOMIC VARIABLES ON CALL MONEY MARKET RATE IN INDIA

Abstract

The objective of the paper is to study the impact of Wholesale Price Index (WPI), Index of Industrial Production (IIP), Oil price, Gold price, Balance of Trade (BOT), Foreign investments in India (FII in Equity), Purchasing Manager Index (PMI), Money Supply and USDINR currency prices on Call Money Market. Another objective is to build a predictive model using regression techniques based on these macroeconomic indicators. The analysis has been carried out based on the monthly time series data for the period April 2005 to December 2013. The results of granger causality shows that Money Supply causes movements in Call Money Market rate. Based on regression model it was determined that USDINR exchange rate, Balance of Trade, Brent Crude Oil Prices and Gold Price impacts monthly call rate. The paper concludes that more than 90% of the movements in call money rate can be explained by modelling the key economic factors through VAR.