Monetary Policy Transmission in an Emerging Market Setting

Author/Editor:

Ila Patnaik ; Ajay Shah ; Rudrani Bhattacharya

Publication Date:

January 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Some emerging economies have a relatively ineffective monetary policy transmission owing to weaknesses in the domestic financial system and the presence of a large and segmented informal sector. At the same time, small open economies can have a substantial monetary policy transmission through the exchange rate channel. In order to understand this setting, we explore a unified treatment of monetary policy transmission and exchangerate pass-through. The results for an emerging market, India, suggest that the most effective mechanism through which monetary policy impacts inflation runs through the exchange rate.

Series:

Working Paper No. 2011/005

Subject:

Central bank policy rate Exchange rate pass-through Exchange rates Financial services Foreign exchange Price indexes Prices Wholesale price indexes

English

Publication Date:

January 1, 2011

ISBN/ISSN:

9781455211838/1018-5941

Stock No:

WPIEA2011005

Pages:

26

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