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Monetary Policy Transmission in an Emerging Market Setting

  • Ila Patnaik
  • Ajay Shah
  • Rudrani Bhattacharya

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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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
Date of revision:
Handle: RePEc:imf:imfwpa:11/5
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