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Do foreign banks in India respond to global monetary policy shocks? A SVAR analysis

Author

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  • Ameen Omar Shareef
  • K.P. Prabheesh

Abstract

Purpose - This paper aims to examine the role of foreign banks in transmitting global monetary policy shocks to India. Further, the authors try to explore the international bank lending channel and analyze the impact of global monetary policy on Indian macroeconomic variables. Design/methodology/approach - The authors use a structural break unit root test and structural vector autoregression on monthly data from 1998 to 2018. Findings - The study finds that the global monetary policy is significantly determining foreign banks’ lending in India; the evidence of a portfolio re-balancing channel in the process of global monetary policy transmission to the Indian economy; the exchange rate is significantly explaining the foreign bank credit dynamism in India; and evidence of international monetary policy spillover to the Indian economy. Originality/value - This is the first attempt to analyze the role of foreign banks in the transmission of global monetary policy shocks to India, where the literature availability is limited. The finding of ineffective domestic monetary policy on foreign bank lending opens the need for an in-depth and diversified analysis of the role of foreign banks in the transmission of domestic monetary policy.

Suggested Citation

  • Ameen Omar Shareef & K.P. Prabheesh, 2020. "Do foreign banks in India respond to global monetary policy shocks? A SVAR analysis," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 38(2), pages 303-316, April.
    • Handle: RePEc:eme:sefpps:sef-10-2019-0417
    DOI: 10.1108/SEF-10-2019-0417
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    Citations

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    Cited by:

    1. Parul Bhatia & Priya Gupta, 2020. "Sub-prime Crisis or COVID-19: A Comparative Analysis of Volatility in Indian Banking Sectoral Indices," FIIB Business Review, , vol. 9(4), pages 286-299, December.
    2. Padhan, Rakesh & Prabheesh, K.P., 2021. "The economics of COVID-19 pandemic: A survey," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 220-237.

    More about this item

    Keywords

    Monetary policy transmission; Monetary policy spillover; Foreign bank; Foreign bank credit; E52; E58; F62;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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