Are the Effects of Monetary Policy Asymmetric in India? Evidence from a Nonlinear Vector Autoregression Approach

Goodness Aye () and Rangan Gupta ()
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Goodness Aye: Department of Agricultural Economics, University of Agriculture, Makurdi, Nigeria

No 201202, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper uses Indian quarterly data for the period of 1960:Q2-2011:Q2 to test for nonlinearity in a standard monetary vector autoregression (VAR) model comprising of output, price and money, using an estimation strategy that is consistent with wide range of structural models. We find that positive and negative monetary policy shocks have an immediate short-live and a delayed persistent asymmetric effect on output and price respectively. In addition, we show that compared to a linear VAR, the nonlinear VAR has a bigger impact of a monetary policy shock on output and price. In general, we conclude that there are clear gains from modelling monetary policy using a nonlinear VAR framework.

Keywords: Asymmetric Effects; Monetary Policy; Linear and Nonlinear VAR; India (search for similar items in EconPapers)
JEL-codes: C32 E23 E31 E51 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
Date: 2012-01
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Persistent link: http://EconPapers.repec.org/RePEc:pre:wpaper:201202

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