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Monetary policy transmission in an emerging market setting

Rudrani Bhattacharya (), Ila Patnaik () and Ajay Shah ()
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Rudrani Bhattacharya: National Institute of Public Finance and Policy
Ila Patnaik: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: Some emerging economies have a relatively ineffective monetary policy transmis- sion 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 exchange-rate 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: Monetary policy transmission; Exchange rate pass-through; Exchange rate regime; Financial development; India (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
Date: 2011-01
Note: Working Paper 78, 2011
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