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Monetary Policy Transmission in an Emerging Market Setting

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  • Ila Patnaik
  • Ajay Shah
  • Rudrani Bhattacharya

Abstract

Some emerging economies have a relatively ineffective monetary policy transmission owing to weaknesses in the domestic financial system and the presence of a large and segmented informal sector. At the same time, small open economies can have a substantial monetary policy transmission through the exchange rate channel. In order to understand this setting, we explore a unified treatment of monetary policy transmission and exchangerate pass-through. The results for an emerging market, India, suggest that the most effective mechanism through which monetary policy impacts inflation runs through the exchange rate.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/5.

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Length: 26
Date of creation: 01 Jan 2011
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Handle: RePEc:imf:imfwpa:11/5

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Keywords: Economic models; Emerging markets; Exchange rates; Monetary transmission mechanism; exchange rate; monetary policy; inflation; exchange rate pass; monetary transmission; central bank; aggregate demand; monetary shock; monetary fund; monetary economics; demand for money; open market operations; monetary policy frameworks; flexible exchange rates; exchange rate shock; exchange rate channel; monetary policy instruments; money demand; nominal exchange rate; monetary policy transmission mechanism; exchange rate regime; monetary policy instrument; monetary policy strategy; intermediate exchange rate regime; contractionary monetary policy; exchange rate changes; monetary policy regime; foreign exchange; exchange rate flexibility; optimal monetary policy; exchange rate appreciation; floating exchange rates; intermediate exchange rate; transmission of monetary policy;

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Citations

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Cited by:
  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. Konov, Joshua Ioji, 2012. "Market Economy under Rapid Globalization and Rising Productivity," MPRA Paper 48750, University Library of Munich, Germany.
  3. Alpaslan, Baris & Demirel, Baki, 2014. "Exchange Rate Pass-Through Effect on Prices and Inflation Targeting: A Comparison of Emerging Market Economies," MPRA Paper 53726, University Library of Munich, Germany.
  4. Joshua Ioji Konov, 2013. "Enhancing Markets (i.e. Economies) Transmissionability to Optimize Monetary Policies’ Effect," EY International Congress on Economics I (EYC2013), October 24-25, 2013, Ankara, Turkey, Ekonomik Yaklasim Association 205, Ekonomik Yaklasim Association.
  5. André Nassif & Carmem Feijó & Eliane Araújo, 2011. "The trend of the real exchange rate overvaluation in open emerging economies: the case of Brazil," Working Papers, Universidade Federal do Paraná, Department of Economics 0111, Universidade Federal do Paraná, Department of Economics.
  6. Jiang, Jiadan & Kim, David, 2013. "Exchange rate pass-through to inflation in China," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 900-912.
  7. Jamilov, Rustam, 2012. "Channels of Monetary Transmission in the CIS," MPRA Paper 39568, University Library of Munich, Germany.
  8. Bhattacharya, Rudrani & Patnaik,Ila, 2014. "Monetary policy analysis in an inflation targeting framework in emerging economies: The case of India," Working Papers, National Institute of Public Finance and Policy 14/131, National Institute of Public Finance and Policy.

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