A Policy Rate Channel Testing of Monetary Policy Transmission Mechanism

Firdous Ahmad Malik, Deepanjali Das, Laeeq Razzak Janjua and Hebatallah Adam
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Firdous Ahmad Malik: University of the People, USA
Deepanjali Das: Lucknow University, India
Laeeq Razzak Janjua: Vistula University, Warsaw, Poland
Hebatallah Adam: O.P. Jindal Global University, India

International Journal of E-Business Research (IJEBR), 2023, vol. 19, issue 1, 1-16

Abstract: Against the backdrop of invariant financial and economic reforms, there are presumptive changes in the confines and speed with which target variables respond to Reserve Bank of India (RBI) policy signals. The result of transmission lags from monetary policy to the real sector is unmistakable. The empirical approach used in this study is a natural progression from the VAR model videlicet, co-integration, and error correction techniques used to overcome the problem of spurious regression associated with non-stationary time-series data. After a shock induces disequilibrium, the speed and degree of adjustment return to a balanced state but with some time lag. The results indicate that in the two-step verification model, it takes approximately 2.851 months for WACMR to fully respond to a change in policy rates, whereas in the second step, it takes approximately 10.33 months for base rates to reach their complete pass-through following changes in call money market and deposit rates.

Date: 2023
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