Munich Personal RePEc Archive

Monetary policy and informal finance: Is there a pecking order?

Ghosh, Saibal and Kumar, Rakesh (2014): Monetary policy and informal finance: Is there a pecking order? Published in: Economic and Political Weekly , Vol. 50, No. 24 (13 June 2015): pp. 18-20.

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Abstract

The paper utilizes state-level data on household dependence on informal finance for an extended time span to examine whether it is impacted by a monetary contraction. The analysis suggests a substitution effect such that borrowing from moneylenders declines, whereas landlords and relatives turn out to be the preferred financing choices. In addition, the evidence also supports a hierarchy among these preferred financing choices. This suggests that monetary policy needs to take on board its impact on the hitherto neglected informal sector.

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