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Monetary Transmission in India: Working of Price and Quantum Channels

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  • Ashima Goyal
  • Deepak Kumar Agarwal

Abstract

The paper examines the strength and efficacy of transmission from the policy rate and liquidity provision to market rates in India, using event window regression analysis. The paper finds the interest rate transmission channel is dominant, but the quantity channel has an indirect impact in increasing the size of interest rate pass through. The speed of response is faster where there is more market depth. Short term liquidity matters for short term rates, especially where markets are thin and long-term liquidity for longer term government securities. Asymmetry, or more transmission during tightening, finds little support, but pass through is faster during tightening. Market rates respond similarly to policy rate changing direction. The quantum channel directly contributes more when in sync with the interest rate channel only occasionally, but contributes indirectly by increasing the size of coefficients. Implications for policy are drawn out.

Suggested Citation

  • Ashima Goyal & Deepak Kumar Agarwal, 2017. "Monetary Transmission in India: Working of Price and Quantum Channels," Working Papers id:12098, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:12098
    Note: Institutional Papers
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    as
    1. Khundrakpam, Jeevan Kumar & Jain, Rajeev, 2012. "Monetary Policy Transmission in India: A Peep Inside the Black Box," MPRA Paper 50903, University Library of Munich, Germany.
    2. Zheng Qiao & Yangshu Liu, 2017. "Open Market Operation Effectiveness in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(8), pages 1706-1719, August.
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    Cited by:

    1. Goyal, Ashima & Kumar, Abhishek, 2018. "Money and business cycle: Evidence from India," The Journal of Economic Asymmetries, Elsevier, vol. 18(C), pages 1-1.

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    More about this item

    Keywords

    Monetary transmission; Repo Rate; market rates; short and long-term liquidity; efficacy of transmission; regression analysis; transmission channel; quantity channel; interest rate; market depth; government securities; Asymmetry; quantum channel; Implications for policy.;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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