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Monetary Policy and Corporate Behaviour in India

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  • International Monetary Fund

Abstract

The paper examines the association and corporate behavior for a sample of manufacturing firms in India for the post-reform period 1992-2003. The findings suggest that a contractionary monetary policy lowers overall debt including bank debt, although the lagged response is positive, and listed firms increase their short-term bank borrowings, after monetary tightening. The responses of corporates to a monetary contraction in the post-1997 period has been more pronounced. A disaggregated analysis of responses of firms according to size and leverage largely validates these findings. Two policy implications emerge from the analysis. First, the interest rate transmission channel has strengthened since 1998, and, second, corporates in India, especially listed ones, seem to exhibit relationship lending.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/25.

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Length: 25
Date of creation: 01 Feb 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/25

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Keywords: Governance; monetary policy; bank debt; central bank; bank borrowings; bank borrowing; transmission of monetary policy; banking; monetary fund; tight monetary policy; monetary transmission; contractionary monetary policy; monetary shocks; bank loans; bank of england; bank financing; bank lending; bank finance; development banking; resource allocation; monetary control; open market operations; bank rate; monetary shock; monetary regimes; working capital; cost of credit; banking sector; banking industry; bank behavior; bank deposits; monetary stance; retained earnings; monetary management; monetary policy regime; financial risk; interbank market; clearing house; interest expense; monetary theory; settlement risk; government securities; monetary transmission mechanism; dividend policy;

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References

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  1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  2. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers, C.V. Starr Center for Applied Economics, New York University 95-15, C.V. Starr Center for Applied Economics, New York University.
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  15. Sims, Christopher A. & Zha, Tao, 2006. "Does Monetary Policy Generate Recessions?," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 10(02), pages 231-272, April.
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Citations

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Cited by:
  1. Aleem, Abdul, 2010. "Transmission mechanism of monetary policy in India," Journal of Asian Economics, Elsevier, Elsevier, vol. 21(2), pages 186-197, April.
  2. Ruslan Aliyev & Dana Hajkova & Ivana Kubicova, 2014. "The Impact of Monetary Policy on Financing of Czech Firms," Working Papers, Czech National Bank, Research Department 2014/05, Czech National Bank, Research Department.
  3. Bank for International Settlements, 2006. "Monetary policy in Asia: approaches and implementation," BIS Papers, Bank for International Settlements, Bank for International Settlements, number 31, 8.
  4. Nachane, Dilip & Ghosh, Saibal & Ray, Partha, 2006. "Basel II and bank lending behavior: Some likely implications for monetary policy in India," MPRA Paper 3840, University Library of Munich, Germany.
  5. Sastry, D. V. S. & Singh, Balwant & Bhattacharya, Kaushik, 2009. "Stability of Lending Rate Stickiness: A Case Study of India," MPRA Paper 26570, University Library of Munich, Germany.
  6. Kaushik Bhattacharya, 2006. "Monetary policy approaches in India," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 74-102 Bank for International Settlements.
  7. Ghosh, Saibal, 2007. "Relationship Lending and Financing Constraints: Firm-Level Evidence for India," MPRA Paper 24253, University Library of Munich, Germany.
  8. Saibal Ghosh, 2006. "Do board characteristics affect corporate performance? Firm-level evidence for India," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(7), pages 435-443.
  9. Ghosh, Saibal, 2006. "Monetary policy and bank behavior: Empirical evidence from India," MPRA Paper 17395, University Library of Munich, Germany.
  10. Ghosh, Saibal & Ghosh, Saurabh, 2006. "Impact of Liquidity constraint on Firms’ Investment Decisions," MPRA Paper 17181, University Library of Munich, Germany.
  11. Ghosh, Saibal, 2010. "Firm Characteristics, Financial Composition and Response to Monetary Policy: Evidence from Indian Data," MPRA Paper 24717, University Library of Munich, Germany.
  12. Majumdar, Raju, 2013. "A Reinterpretation of the Relation between Market-to-book ratio and Corporate Borrowing," MPRA Paper 52398, University Library of Munich, Germany.

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