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Monetary Transmission in Developing Countries: Evidence from India

Author

Listed:
  • Ms. Prachi Mishra
  • Mr. Peter J Montiel
  • Rajeswari Sengupta

Abstract

We examine the strength of monetary transmission in India, using a conventional structural VAR methodology. We find that a tightening of monetary policy is associated with a significant increase in bank lending rates and conventional effects on the exchange rate, though pass-through to lending rates is only partial and exchange rate effects are weak. We could find no significant effects on real output or the inflation rate. Though the message for the effectiveness of monetary transmission in India is therefore mixed, our results for India are more favorable than is often found for other developing countries.

Suggested Citation

  • Ms. Prachi Mishra & Mr. Peter J Montiel & Rajeswari Sengupta, 2016. "Monetary Transmission in Developing Countries: Evidence from India," IMF Working Papers 2016/167, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/167
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    References listed on IDEAS

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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