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Monetary Policy Transmission in an Emerging Market Setting

Ila Patnaik (), Ajay Shah and Rudrani Bhattacharya

No 2011/005, 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: WP; sc; exchange rate; interest rate; Monetary policy transmission; Exchange rate pass-through; interest rate channel; transmission mechanism; interest rate hike; channel of monetary policy; open economy; Exchange rates; Wholesale price indexes; Price indexes; Central bank policy rate; East Asia (search for similar items in EconPapers)
Pages: 26
Date: 2011-01-01
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Handle: RePEc:imf:imfwpa:2011/005