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In quest for policy 'silver bullets' towards triggering a v-shaped recovery

Bhadury, Soumya and Ghosh, Saurabh and Gopalakrishnan, Pawan (2021): In quest for policy 'silver bullets' towards triggering a v-shaped recovery.

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In this paper, we attempt to identify silver bullets for a resilient post-Covid recovery, in the context of bank-dominated emerging market economies (EME). Our empirical findings using Indian data, business cycle dating, and dynamic factors analysis indicate that both private consumption and investment play important roles in activity recovery during the up-cycle phases. Private investment-led recoveries can enable a strong growth revival, as it impacts both consumption and output. Quantity and quality of Government capital expenditure play an important role, especially during a growth deceleration. Finally, for all these channels to work, credit off-take could be crucial for a bank-dominated economy. Besides policy rate reduction, accommodative liquidity stance, and policies to address legacy issues relating to banking NPAs, we also highlight some of the other policy measures that could help smoothen the path to growth recovery.

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