Monetary Transmission in Developing Countries: Evidence from India

Prachi Mishra, Peter Montiel and Rajeswari Sengupta

No 2016/167, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; reverse repo; aggregate demand; interest rate; contractionary monetary policy; monetary policy; bank lending; India; monetary policy shock; monetary policy variable; reaction function; Taylor-type monetary policy rule; Central bank policy rate; Bank credit; Reverse repo rates; Exchange rate arrangements; Exchange rates; Global; Central and Eastern Europe (search for similar items in EconPapers)
Pages: 68
Date: 2016-08-08
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Citations: View citations in EconPapers (40)

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Working Paper: Monetary transmission in developing countries: Evidence from India (2016)
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