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Effectiveness of Interest Rate Channel in Price and Output Determination in the Post Financial Liberalization Era of a Developing Economy: Evidence from India

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  • Mudabber AHMED
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    Abstract

    This paper measures the magnitude of money and interest rate shocks in explaining the price and output movement in the post financial liberalization era of India. The objective is achieved through technique termed historical decomposition within the framework of Vector autoregressive Model. Analyses of historical decompositions show that interest rate shock plays a moderate role in determining price but not output in India. The paper also discusses potential reasons for failure of interest rate channel in India.

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    Bibliographic Info

    Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

    Volume (Year): 6 (2006)
    Issue (Month): 3 ()
    Pages:

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    Handle: RePEc:eaa:aeinde:v:6:y:2006:i:3_15

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    1. Lawrence J. Christiano & Martin Eichenbaum, 1989. "Unit roots in real GNP: do we know, and do we care?," Discussion Paper / Institute for Empirical Macroeconomics 18, Federal Reserve Bank of Minneapolis.
    2. Burbidge, John & Harrison, Alan, 1985. "An historical decomposition of the great depression to determine the role of money," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 45-54, July.
    3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    4. Sims, Christopher A., 1988. "Bayesian skepticism on unit root econometrics," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 463-474.
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