Partial Integration of Indian Money, Forex, and Equity Markets Post-1991 Reforms: Cointegration Analysis and Vector Error Correction Modelling Using Monthly Time Series from 2015 to 2026

Abstract India's post-1991 financial liberalization progressively opened the money, foreign exchange, and equity markets to cross-segment arbitrage, yet full integration has remained elusive owing to the Reserve Bank of India's (RBI) managed float regime, sterilized intervention, and capital-account restrictions. This paper investigates the degree of long-run cointegration among three representative monthly series — the Weighted Average Call Money Rate (WACR), the log USD/INR reference rate, and log Nifty 50 — over the period January 2015 to February 2026 (approximately 134 observations). The sample encompasses structurally significant episodes including demo netization (2016), GST implementation (2017), the IL&FS crisis (2018–2019), the COVID-19 shock (2020), post-pandemic monetary tightening, and sustained rupee depreciation toward the 90–92 range. Employing Johansen's maximum-likelihood cointegration test and a Vector Error Correction Model (VECM), we find evidence of a single long-run equilibrium relationship (rank r = 1), indicating partial rather than full integration. Adjustment coefficients are statistically significant for the equity and forex equations but economically small and insignificant for the money-market rate, consistent with policy-constrained transmission. Short-run Granger causality is bidirectional between USD/INR and Nifty 50, particularly during crisis episodes. Impulse response and variance decomposition analysis indicate that rupee fluctuations account for up to 21 percent of equity forecast-error variance at a twelve-month horizon. The results have direct implications for the efficacy of monetary policy transmission in India and for systemic-risk monitoring in emerging markets. Keywords: financial market integration, cointegration, VECM, money market, forex market, equity market, India, rupee, Nifty 50