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Does bank competition affect the transmission mechanism of monetary policy through bank lending channel? Evidence from India

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  • Rakshit, Bijoy
  • Bardhan, Samaresh

Abstract

This paper empirically investigates how intensified competition in the Indian banking affects the transmission of monetary policy through bank lending channel over the period 1997–2017. Additionally, this study examines the impact of deposit and loan market channels on bank’s credit growth. Results obtained through two-step system-GMM reveal that a higher degree of market power weakens the monetary policy transmission mechanism for the entire banking industry and across ownerships. Results show that higher market power in the deposit and loan markets weakens the impact of monetary policy on bank loan supply. The findings of this study extend important policy measures that can strengthen the transmission mechanism of monetary policy by reducing the adverse effects of changes in bank competition.

Suggested Citation

  • Rakshit, Bijoy & Bardhan, Samaresh, 2023. "Does bank competition affect the transmission mechanism of monetary policy through bank lending channel? Evidence from India," Journal of Asian Economics, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:asieco:v:86:y:2023:i:c:s1049007823000155
    DOI: 10.1016/j.asieco.2023.101595
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    More about this item

    Keywords

    Bank competition; Monetary policy transmission; Bank lending channel; India;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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