Monetary Policy and Corporate Behavior in India

26 Pages Posted: 10 Jan 2006

See all articles by A. Prasad

A. Prasad

International Monetary Fund (IMF)

Saibal Ghosh

Government of India - Economic Analysis & Policy

Date Written: February 2005


The paper examines the association and corporate behavior for a sample of manufacturing firms in India for the post-reform period 1992-2003. The findings suggest that a contractionary monetary policy lowers overall debt including bank debt, although the lagged response is positive, and listed firms increase their short-term bank borrowings, after monetary tightening. The responses of corporates to a monetary contraction in the post-1997 period has been more pronounced. A disaggregated analysis of responses of firms according to size and leverage largely validates these findings. Two policy implications emerge from the analysis. First, the interest rate transmission channel has strengthened since 1998, and, second, corporates in India, especially listed ones, seem to exhibit relationship lending.

Keywords: India, governance, monetary policy, ownership, corporate finance

JEL Classification: E52, G32

Suggested Citation

Prasad, Ananthakrishnan and Ghosh, Saibal, Monetary Policy and Corporate Behavior in India (February 2005). IMF Working Paper No. 05/25. Available at SSRN:

Ananthakrishnan Prasad (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Saibal Ghosh

Government of India - Economic Analysis & Policy ( email )

Mumbai, Maharashtra 400001
+91-22-22661294 (Phone)
+91-22-22660869 (Fax)

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