The Reserve Bank of India on November 28, 2023 has released Volume 43, No.2, 2022 of its Occasional Papers, a research journal containing contributions from its staff. This issue contains three articles and two book reviews.
The first article, “Cash versus Digital Payment Transactions in India: Decoding the Currency Demand Paradox,” confronts the enigma of simultaneous growth in cash and digital transactions. The study’s key revelation is that while the transactional use of cash is declining, its store-of-value role persists. The COVID-19 pandemic triggered a temporary surge in currency demand, driven by precautionary motives. Using autoregressive distributed lag (ARDL) models, the paper identifies income, interest rates, and uncertainty as significant drivers of cash demand. Interestingly, digital payments exhibit an inverse relationship with currency demand, offering a nuanced understanding of the evolving payment landscape.
The second article, “Inflation Forecasting in India: Are Machine Learning Techniques Useful?” explores the intersection of modern technology and economic forecasting. Leveraging supervised machine learning techniques, the authors unveil non-linear relationships between inflation and its determinants. Comparative analysis with traditional models reveals superior forecasting performance, especially in the post-pandemic period. This exploration underscores the potential of machine learning to enhance our understanding of complex economic phenomena.
The third article introduces a novel perspective with “A New Unit Root Test Criterion.” Acknowledging the limitations of existing unit root tests, the paper proposes a new criterion based on the ratio of probability distribution functions. Through empirical comparisons with popular tests, the authors demonstrate the heightened power of their proposed test for smaller sample sizes. This innovative approach contributes to the ongoing dialogue on refining statistical methods in economic research.
Turning the spotlight to literature, the two book reviews provide a bridge between economic theory and its real-world implications. Nandini Jayakumar dissects Edward Chancellor’s “The Price of Time: The Real Story of Interest,” emphasizing the historical evolution of interest rates and cautioning against the potential pitfalls of prolonged low rates. The review prompts reflection on the role of central banks in shaping economic landscapes.
Tista Tiwari, in her review of William D. Nordhaus’s “The Spirit of Green: The Economics of Collisions and Contagions in a Crowded World,” navigates the complex terrain of environmental economics. The book advocates for a balanced approach, eschewing extreme positions in favor of a middle ground that combines market mechanisms and government interventions. Tiwari’s review serves as a compass for those seeking sustainable solutions in a crowded and interconnected world.
