Examination of the Credit Channel of Monetary Transmission in India: Results from Response of Commercial Banks’ Balance Sheet to a Monetary Policy Shock

Vineet Virmani

No WP2004-09-03, IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: In this study I present some evidence on the credit channel of monetary transmission in India. Using the set up of Bernanke and Blinder (1992) it is found that loans, investments and deposits of commercial banking system respond significantly to a monetary policy shock. Results to a positive shock to monetary base are as expected. Investments respond almost immediately and then taper whereas deposits permanently settle at a higher level. Loans respond more slowly and are seen to move contemporaneously with output after a lag of 8-12 months.

Date: 2004-09-03
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