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Monetary Policy Transmission in an Emerging Market Setting

Ila Patnaik (), Ajay Shah () and Rudrani Bhattacharya

No 11/5, IMF Working Papers from International Monetary Fund

Abstract: Some emerging economies have a relatively ineffective monetary policy transmission owing to weaknesses in the domestic financial system and the presence of a large and segmented informal sector. At the same time, small open economies can have a substantial monetary policy transmission through the exchange rate channel. In order to understand this setting, we explore a unified treatment of monetary policy transmission and exchangerate pass-through. The results for an emerging market, India, suggest that the most effective mechanism through which monetary policy impacts inflation runs through the exchange rate.

Keywords: Economic models; Emerging markets; Exchange rate pass-through; Exchange rates; Monetary transmission mechanism; Monetary policy; Monetary policy transmission, exchange rate, inflation, exchange rate pass, monetary transmission, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
Date: 2011-01-01
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