A MONETARY BUSINESS CYCLE MODEL FOR INDIA

Authors

Shesadri Banerjee, Madras Institute of Development Studies
Parantap Basu, Durham University Business School
Chetan Ghate, Indian Statistical Institute (Delhi Centre)

Article Type

Research Article

Publication Title

Economic Inquiry

Abstract

A New Keynesian monetary business cycle model is constructed to study why monetary transmission in India is weak. Our models feature banking and financial sector frictions as well as an informal sector. The predominant channel of monetary transmission is a credit channel. Our main finding is that base money shocks have a larger and more persistent effect on output than an interest rate shock, as in the data. The presence of an informal sector hinders monetary transmission. Contrary to the consensus view, financial repression in the form of a statutory liquidity ratio and administered interest rates, does not weaken monetary transmission. (JEL E31, E32, E44, E52, E63).

First Page

1362

Last Page

1386

DOI

10.1111/ecin.12855

Publication Date

7-1-2020

Comments

Open Access, Green

Recommended Citation

Banerjee, Shesadri; Basu, Parantap; and Ghate, Chetan, "A MONETARY BUSINESS CYCLE MODEL FOR INDIA" (2020). Journal Articles. 232.
https://digitalcommons.isical.ac.in/journal-articles/232