 Changing transmission of monetary policy on disaggregate inflation in IndiaAnkit Kumar and Pradyumna Dash Economic Modelling, 2020, vol. 92, issue C, 109-125 Abstract: This paper investigates the time-varying effects of monetary policy on aggregate, sectoral, and disaggregate inflation in India from 1997 to 2017 using a large dataset of 439 variables. We find that the effectiveness of a contractionary monetary policy in controlling aggregate inflation has improved over time. This improvement in the policy's effectiveness can be attributed to better transmission through credit and asset price channels. In investigating disaggregate inflation, we find that a contractionary monetary policy is more effective in reducing inflation in the manufacturing sector than in the agricultural sector. Further, the sacrifice ratios in all manufacturing sectors have improved over time. However, the commodities prices of some sectors respond positively after a monetary contraction, which demonstrates the presence of a cost channel in the Indian economy. Our findings suggest that the monetary authority in India should have an interest rate rule that incorporates sectoral inflation and reacts to each with different intensity. Keywords: Monetary Policy; Transmission channel; Sacrifice ratio; Disaggregate inflation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:92:y:2020:i:c:p:109-125 DOI: 10.1016/j.econmod.2020.07.016 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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