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Industry Effects of Monetary Policy: Evidence from India

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  • Ghosh, Saibal

Abstract

The study exploits 2-digit level industry data for the period 1981-2004 to ascertain the interlinkage between a monetary policy shock and industry value added. Accordingly, we first estimate a Vector Auto Regression (VAR) model to ascertain the magnitude of a monetary policy shock on industrial output. Subsequently, we try to explain the observed heterogeneity in terms of industry characteristics. The findings indicate that (a) industries exhibit differential response to a monetary tightening and (b) both interest rate and financial accelerator variables tend to be important in explaining the differential response.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17307.

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Date of creation: Jan 2009
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Publication status: Published in Indian Economic Review 1.44(2009): pp. 89-105
Handle: RePEc:pra:mprapa:17307

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Keywords: industry; monetary policy; interest rate channel; financial accelerator; vector auto regression; cross section regression;

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  1. Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers, Suntory and Toyota International Centres for Economics 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Kristin J. Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," NBER Working Papers 9095, National Bureau of Economic Research, Inc.
  3. Hayo, Bernd & Uhlenbrock, Birgit, 1999. "Industry effects of monetary policy in Germany," ZEI Working Papers B 14-1999, ZEI - Center for European Integration Studies, University of Bonn.
  4. Nachane, D M & Ray, P & Ghosh, S, 2001. "Does monetary policy have differential state-level effects? an empirical evaluation," MPRA Paper 2708, University Library of Munich, Germany.
  5. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  6. Zilibotti, Fabrizio & Redding, Stephen & Burgess, Robin & Aghion, Philippe, 2005. "Entry Liberalization and Inequality in Industrial Performance," Scholarly Articles 4481508, Harvard University Department of Economics.
  7. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, Elsevier, vol. 36(5), pages 975-1000, June.
  8. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9710, Faculty of Economics, University of Cambridge.
  9. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
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  11. Luca Dedola & Francesco Lippi, 2000. "The Monetary Transmission Mechanism: Evidence from the Industry Data of Five OECD Countries," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1833, Econometric Society.
  12. Peersman, Gert & Smets, Frank, 2002. "The industry effects of monetary policy in the euro area," Working Paper Series, European Central Bank 0165, European Central Bank.
  13. Pattnayak, Sanja S. & Thangavelu, S.M., 2005. "Economic reform and productivity growth in Indian manufacturing industries: an interaction of technical change and scale economies," Economic Modelling, Elsevier, Elsevier, vol. 22(4), pages 601-615, July.
  14. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
  15. Gerald Carlino & Robert DeFina, 1997. "The differential regional effects of monetary policy: evidence from the U.S. States," Working Papers 97-12, Federal Reserve Bank of Philadelphia.
  16. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, Elsevier, vol. 69(2), pages 315-334, December.
  17. Sanyal, Paroma & Menon, Nidhiya, 2005. "Labor Disputes and the Economics of Firm Geography: A Study of Domestic Investment in India," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 53(4), pages 825-54, July.
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