 Does Financial Frictions Matter for Monetary Policy Transmission in India?Ranjan Kumar Mohanty () and
N R Bhanumurthy
Chapter Chapter 15 in India’s Contemporary Macroeconomic Themes, 2023, pp 357-384 from Springer Abstract: Abstract In the context of the adoption of flexible inflation targeting regime in India since 2016, it is necessary to understand the effectiveness of monetary transmission mechanism. The paper investigates if there are any asymmetries in the monetary transmission during different regimes and verifies the role of financial frictions in such asymmetries, if it exists. Using Markov-Switching Vector Autoregression (MS-VAR) models, our results suggest that there are asymmetries in the monetary transmission mechanism during highly volatile and low-volatile regimes with respect to its effects on both output and inflation. It also finds that financial frictions do influence the extent and effectiveness of the policy transmission process in India. From a policy perspective, while the Reserve Bank of India (RBI) may continue to target inflation during high-volatile regimes, it could have output growth as an additional target during the low-volatile regimes. Keywords: Monetary transmission mechanism; Financial frictions; Bank credit channel; Interest rate channel; Markov-switching vector autoregression (MS-VAR); India (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-99-5728-6_15 Ordering information: This item can be ordered from DOI: 10.1007/978-981-99-5728-6_15 Access Statistics for this chapter More chapters in India Studies in Business and Economics from Springer |
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