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Monetary Policy and the Credit Channel: Evidence from India

Listed author(s):
  • Bose, Sukanya

Credit channel of monetary transmission mechanism provides an alternative transmission channel of monetary shock through the asset side of the banking system. Based on the literature on market imperfection, it presents some appealing arguments on supply side effects of innovations in monetary policy, which are of relevance to developing countries. We test the empirical validity of credit channel in India in the context of the mid-nineties episode of the adverse monetary shock. The evidence suggests the operation of a balancesheet channel with the effect of an adverse monetary shock falling disproportionately on bank-dependent firms. The evidence in respect to an aggregate lending channel is mixed.

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File URL: https://mpra.ub.uni-muenchen.de/28486/1/MPRA_paper_28486.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28486.

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Date of creation: 2001
Handle: RePEc:pra:mprapa:28486
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  1. Michael D. Boldin, 1993. "Econometric analysis of the recent downturn in housing construction: was it a credit-crunch?," Research Paper 9332, Federal Reserve Bank of New York.
  2. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
  3. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 309-340.
  4. Stephen D. Oliner & Glenn D. Rudebusch, 1996. "Is there a broad credit channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13.
  5. Mark Gertler & R. Glenn Hubbard, 1988. "Financial factors in business fluctuations," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 33-78.
  6. Anil K. Kashyap & Jeremy C. Stein, 1994. "Monetary Policy and Bank Lending," NBER Chapters,in: Monetary Policy, pages 221-261 National Bureau of Economic Research, Inc.
  7. Christina D. Romer & David H. Romer, 1990. "New Evidence on the Monetary Transmission Mechanism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 149-214.
  8. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  9. Timberg, Thomas A & Aiyar, C V, 1984. "Informal Credit Markets in India," Economic Development and Cultural Change, University of Chicago Press, vol. 33(1), pages 43-59, October.
  10. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
  11. Gertler, Mark & Gilchrist, Simon, 1993. " The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(1), pages 43-64.
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