Monetary Transmission in Developing Countries: Evidence from India
August 8, 2016
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Summary
We examine the strength of monetary transmission in India, using a conventional structural VAR methodology. We find that a tightening of monetary policy is associated with a significant increase in bank lending rates and conventional effects on the exchange rate, though pass-through to lending rates is only partial and exchange rate effects are weak. We could find no significant effects on real output or the inflation rate. Though the message for the effectiveness of monetary transmission in India is therefore mixed, our results for India are more favorable than is often found for other developing countries.
Subject: Bank credit, Banking, Central bank policy rate, Exchange rate arrangements, Exchange rates, Financial services, Foreign exchange, Money, Reverse repo rates
Keywords: aggregate demand, Bank credit, bank lending, Central and Eastern Europe, Central bank policy rate, contractionary monetary policy, Exchange rate arrangements, Exchange rates, Global, India, interest rate, monetary policy, monetary policy shock, monetary policy variable, reaction function, reverse repo, Reverse repo rates, Taylor-type monetary policy rule, WP
Pages:
68
Volume:
2016
DOI:
Issue:
167
Series:
Working Paper No. 2016/167
Stock No:
WPIEA2016167
ISBN:
9781475523966
ISSN:
1018-5941
