Monetary Transmission in Developing Countries: Evidence from India

69 Pages Posted: 9 Dec 2016

See all articles by Prachi Mishra

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Peter J. Montiel

Williams College - Department of Economics

Rajeswari Sengupta

Indira Gandhi Institute of Development Research (IGIDR)

Date Written: August 2016

Abstract

We examine the strength of monetary transmission in India, using a conventional structural VAR methodology. We find that a tightening of monetary policy is associated with a significant increase in bank lending rates and conventional effects on the exchange rate, though pass-through to lending rates is only partial and exchange rate effects are weak. We could find no significant effects on real output or the inflation rate. Though the message for the effectiveness of monetary transmission in India is therefore mixed, our results for India are more favorable than is often found for other developing countries.

Keywords: Monetary transmission mechanism, India, Banks, Loans, Monetary policy, Inflation targeting, Developing countries, Vector autoregression, Econometric models, monetary policy, bank lending, India

JEL Classification: E50, O11, O16

Suggested Citation

Mishra, Prachi and Montiel, Peter J. and Sengupta, Rajeswari, Monetary Transmission in Developing Countries: Evidence from India (August 2016). IMF Working Paper No. 16/167. Available at SSRN: https://ssrn.com/abstract=2882604

Prachi Mishra (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Peter J. Montiel

Williams College - Department of Economics ( email )

Fernald House
Office: Fernald 14
Williamstown, MA 01267
United States
413-597-2103 (Phone)
413-597-4045 (Fax)

HOME PAGE: http://www.williams.edu/Economics/faculty/montiel.htm

Rajeswari Sengupta

Indira Gandhi Institute of Development Research (IGIDR) ( email )

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