Measuring monetary policy and its impact on the bond market of an emerging economy

Rudra Sensarma and Indranil Bhattacharyya

MPRA Paper from University Library of Munich, Germany

Abstract: In view of multiple instruments used by many central banks in emerging market economies, we derive a composite measure of monetary policy for India and assess its impact on the yield curve. Our results show that while monetary policy has the dominant impact among macroeconomic variables on the entire term structure, it is particularly strong at the shorter end and on credit spreads. Shifts in the level of the government yield curve and credit spreads also lead to changes in monetary policy. In terms of robustness, our measure performs better than a narrative based measure of monetary policy available in the literature.

Keywords: Term structure; yield curve; monetary policy; SVAR (search for similar items in EconPapers)
JEL-codes: C51 E44 E52 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-mac and nep-mon
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Published in Macroeconomics and Finance in Emerging Market Economies 2.9(2016): pp. 109-130

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Journal Article: Measuring monetary policy and its impact on the bond market of an emerging economy (2016)
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