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Macroeconomic Policies and Transmission Dynamics in India

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  • Kapur, Muneesh

Abstract

Against the backdrop of the move to an inflation targeting monetary policy framework beginning 2014 with consumer price index (CPI) inflation as the nominal anchor, this paper revisits monetary transmission dynamics. Rather than confining to the typical three equation New Keynesian model, this paper assesses transmission in a broader, disaggregated model incorporating external sector, fiscal policy, banking sector and financial market variables to capture the interactions among key macroeconomic policies and macroeconomic aggregates. The empirical analysis confirms the role of monetary policy in containing demand and inflationary pressures. In view of the ongoing structural reforms, deregulation and opening up of the Indian economy, as well as ongoing initiatives in the monetary policy operating framework to improve the efficacy of monetary transmission, the transmission dynamics can be expected to evolve over time.

Suggested Citation

  • Kapur, Muneesh, 2018. "Macroeconomic Policies and Transmission Dynamics in India," MPRA Paper 88566, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:88566
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    File URL: https://mpra.ub.uni-muenchen.de/88566/1/MPRA_paper_88566.pdf
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    Keywords

    Bank Credit; Bond Yields; Capital Flows; Current Account; Exchange Rate; Fiscal Policy; India; IS curve; Monetary Policy; Monetary Transmission; Phillips Curve; Structural Econometric Model;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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