Nexus of Monetary Policy and Productivity in an Emerging Economy: Supply-Side Transmission Evidence from India

R. L. Manogna () and Deepali Desai ()
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R. L. Manogna: BITS Pilani K K Birla Goa Campus
Deepali Desai: Christ University
Authors registered in the RePEc Author Service: Leshma Manogna Ramappagari

Journal of Quantitative Economics, 2024, vol. 22, issue 1, No 3, 45-61

Abstract: Abstract Monetary policy and its transmissions have been debated by various schools of thought. The purpose of this paper is to empirically tests whether monetary policy has supply side effect influencing Indian economy’s total factor productivity. This study uses ARDL model to ascertain the long run relationship between monetary policy proxies and total factor productivity (TFP). Cointegration tests reveal that total factor productivity has a relationship with all of the monetary policy proxies. The ARDL results reveal a negative relationship between TFP and some monetary policy proxies in the short run, but a positive effect in the long run. These results showcase the possible supply side transmission of monetary policy in India, which can help in determining an optimal policy so as to augment TFP, an important driver of economic growth. The study only focusses on the Indian economy and spillover effects of other Asian economies on India’s TFP can also be examined.

Keywords: Monetary policy; Total factor productivity; Cointegration; ARDL; Long-run relationship (search for similar items in EconPapers)
JEL-codes: E52 E60 G10 G20 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s40953-023-00380-9

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