Investigating Asymmetric Effects of Electronic Payment on Money Supply for India using Non-linear ARDL Model

Abstract

Money supply in India is analysed using a non-linear autoregressive distributed lag (NARDL) model to see how several factors, such as electronic payments, exchange rate, interest rates and inflation, affect the money supply. The Augmented Dickey–Fuller unit root test and the Phillips–Perron unit root test are utilized to confirm that the variables are stationary. In the bounds test of the NARDL as well as Johansen–Juselius cointegration test, this study finds evidence of cointegration amongst variable used in the study. NARDL testing model is employed to investigate the dissimilar influences on variables with short- and long-run dynamics. Short-term estimates suggest that the money supply (M1) is most responsive to positive shocks involving retail payments, the exchange rate and interest rates, but negative shocks involving card payment and prepaid payment instruments. A reduction in card payment, as well as a positive increase in retail payment, the prepaid payment instrument, the exchange rate and the interest rate, would all have major effects on M3 in short run. In addition, a long-term finding demonstrates that all of the variables have a significant influence on the money supply (M1) in its mixed form while all of the factors, with the exception of the one involving card payments, have a considerable impact on the money supply (M3). Wald test results confirm the existence of asymmetric influences which can have significant lessons for policymakers.