Money market microstructure and monetary policy: the Indian experience

Indranil Bhattacharyya, Mohua Roy, Himanshu Joshi and Michael Patra

Macroeconomics and Finance in Emerging Market Economies, 2009, vol. 2, issue 1, 59-77

Abstract: Money market microstructure has recently started drawing attention in the empirical literature on financial markets of emerging market economies. In the Indian context, a GARCH(1, 1) model shows that policy instruments impact bid-ask spreads in the money market. Volatility of bid-ask spreads seems to be more persistent in the overnight market than in longer maturity segments. The results also suggest the dominance of policy interventions over the market microstructure across the term structure of the Indian money market. Unanticipated policy actions can delay mean reversion and, therefore, the return to stability.

Keywords: monetary policy; market microstructure; GARCH; persistence (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/17520840902726326

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