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Industry Effects of Monetary Policy: Evidence from India

  • Saibal Ghosh

    (Department of Economic Analysis & Policy [DEAP], Reserve Bank of India, Mumbai.)

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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Article provided by Department of Economics, Delhi School of Economics in its journal Indian Economic Review.

Volume (Year): 44 (2009)
Issue (Month): 1 (July)
Pages: 89-105

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Handle: RePEc:dse:indecr:v:44:y:2009:i:1:p:89-105
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  1. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
  2. Peersman, Gert & Smets, Frank, 2002. "The industry effects of monetary policy in the euro area," Working Paper Series 0165, European Central Bank.
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  10. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2005. "Entry Liberalization and Inequality in Industrial Performance," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 291-302, 04/05.
  11. 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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  14. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, vol. 69(2), pages 315-334, December.
  15. 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.
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  17. 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.
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