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Are the Effects of Monetary Policy Asymmetric in India? Evidence from a Nonlinear Vector Autoregression Approach

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Author Info

  • Goodness C. Aye

    ()
    (Department of Agricultural Economics, University of Agriculture, Makurdi, Nigeria)

  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

Abstract

This paper uses Indian quarterly data for the period of 1960:Q2-2011:Q2 to test for nonlinearity in a standard monetary vector autoregression (VAR) model comprising of output, price and money, using an estimation strategy that is consistent with wide range of structural models. We find that positive and negative monetary policy shocks have an immediate short-live and a delayed persistent asymmetric effect on output and price respectively. In addition, we show that compared to a linear VAR, the nonlinear VAR has a bigger impact of a monetary policy shock on output and price. In general, we conclude that there are clear gains from modelling monetary policy using a nonlinear VAR framework.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201202.

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Length: 5 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:pre:wpaper:201202

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Keywords: Asymmetric Effects; Monetary Policy; Linear and Nonlinear VAR; India;

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Cited by:
  1. Khundrakpam, Jeevan Kumar, 2013. "Are there Asymmetric Effects of Monetary Policy in India?," MPRA Paper 53059, University Library of Munich, Germany.

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