IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v156y2026ics0264999325004584.html

Fragile firms, fierce shocks: The asymmetric firm-level transmission of monetary policy in India

Author

Listed:
  • Raghuvanshi, Abhay Pratap
  • Ahmad, Wasim

Abstract

How do firm characteristics shape the real effects of monetary policy in emerging markets, and which firms bear the highest cost of tightening? Using firm-level data for India from 2011 to 2022, this paper examines heterogeneity in monetary transmission, focusing on balance-sheet strength, market power, and ownership. Using a panel local-projection framework, we estimate the dynamic response of firm sales to monetary policy shocks. Tightening shocks lead to larger sales contractions among firms with higher leverage, weaker liquidity and profitability, and smaller asset bases. Policy effects are also asymmetric: financially fragile firms suffer a deeper sales reduction during the expansion phase of the business cycle than during the contraction phase. The findings suggest that monetary transmission in emerging markets operates through a balance-sheet channel, where credit frictions amplify the impact of policy shocks, rendering firm financial resilience crucial to the effectiveness of transmission.

Suggested Citation

  • Raghuvanshi, Abhay Pratap & Ahmad, Wasim, 2026. "Fragile firms, fierce shocks: The asymmetric firm-level transmission of monetary policy in India," Economic Modelling, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:ecmode:v:156:y:2026:i:c:s0264999325004584
    DOI: 10.1016/j.econmod.2025.107463
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999325004584
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2025.107463?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:156:y:2026:i:c:s0264999325004584. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.