The World Uncertainty Index And The Macroeconomic Indicators; A Case For India

Abstract

In this study, we have empirically investigated the dynamic interplay among the World Uncertainty Index (WUI), growth rate, inflation rate, and interest rate using a Vector Autoregressive Model (VAR) with a lag order of 4, analyzing quarterly data spanning from 1996Q3 to 2021Q1. Our investigation employs various analytical techniques including the Augmented Dickey Fuller (ADF) test, Impulse Response Function (IRF), Granger causality, and Ordinary Least Squares (OLS) based CUSUM test for assessing model stability. Our empirical findings reveal a noteworthy positive correlation between the WUI and growth rate, suggesting that heightened global uncertainty tends to coincide with increased economic growth. Conversely, we observe a negative impact of interest rates on growth rate, indicating that higher interest rates may dampen economic expansion.