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Sectoral Effects of Monetary Policy in India

Author

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  • Nandini Sengupta

    (Nandini Sengupta, Department of Economics, Kishinchand Chellaram College, University of Mumbai, Mumbai, India. E-mail: nandiniresearch@gmail.com)

Abstract

Every economy comprises of different sectors with divergent characteristics. These different sectors respond heterogeneously to identical unanticipated macroeconomic stimuli. Using a Vector Autoregression model this study finds that the impact of a monetary policy shock at the sectoral level is heterogeneous with manufacturing being the most responsive. The sectors such as Manufacturing, Mining and Quarrying, Construction and Trade are the fastest to respond. The differential sectoral effects depend upon factors such as capital intensity, interest sensitivity, export-orientation, production planning strategies among others. The sectors also differ in terms of the most effective channel of monetary transmission. The interest rate channel has emerged as the most efficient channel of the monetary policy transmission in most of the sectors followed by the credit channel. Therefore, the heterogeneous sectoral responses indicate the need for a more sector-specific monetary policy. JEL Classification : E50, E52, E58, O53

Suggested Citation

  • Nandini Sengupta, 2014. "Sectoral Effects of Monetary Policy in India," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 127-154, June.
    • Handle: RePEc:sae:smppub:v:3:y:2014:i:1:p:127-154
    DOI: 10.1177/2277978714525309
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    References listed on IDEAS

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    More about this item

    Keywords

    Transmission mechanism; VAR model; sectoral effect; interest rate channel; credit; exchange rate;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • 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
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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