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A Monetary Business Cycle Model for India

Shesadri Banerjee (), Parantap Basu (), Chetan Ghate (), Pawan Gopalakrishnan () and Sargam Gupta ()
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Parantap Basu: Durham University, Durham University Business School

No 2018_01, CEGAP Working Papers from Durham University Business School

Abstract: We build and calibrate a New Keynesian monetary business cycle model to theIndian economy to understand why the aggregate demand channel of monetary transmission is weak. Our main Önding is that base money shocks have a larger and more persistent effect on output than an interest rate shock, as in the data. We show that Önancial repression, in the form of a statutory liquidity ratio and administered interest rates, does not weaken monetary transmission. This is contrary to the consensus view in policy discussions on Indian monetary policy. We show that the presence of an informal sector hinders monetary transmission.

Keywords: Monetary Business Cycles; Monetary Transmission; Ináation Targeting. (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 E52 E63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-iue, nep-mac and nep-mon
Date: 2018-03
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