Measuring the Efficacy of Monetary Policy in India Using a Monetary Measure

The IUP Journal of Bank Management, Vol. IX, No. 3, pp. 7-22, August 2010

Posted: 4 Sep 2010

Date Written: September 3, 2010

Abstract

Keeping in view the financial sector reforms and introduction of a number of financial innovations, the present study empirically examines the efficacy of monetary policy in achieving its objective of price stability and growth in the post-1999 era. Unlike the conventional method of using the short-term interest rate or the money supply as the stance of monetary policy, the present study constructs a narrative monetary measure and uses the same as a stance of monetary policy. Using Impulse Response Functions (IRF) and Fixed Error Variance Decomposition (FEVD) of Vector Autoregressive (VAR) Analysis, it is concluded that the monetary policy has very little impact on the final target variables, i.e., growth and prices.

Suggested Citation

Patnaik, Anuradha S., Measuring the Efficacy of Monetary Policy in India Using a Monetary Measure (September 3, 2010). The IUP Journal of Bank Management, Vol. IX, No. 3, pp. 7-22, August 2010, Available at SSRN: https://ssrn.com/abstract=1671463

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