Are there Asymmetric Effects of Monetary Policy in India?

Khundrakpam, Jeevan Kumar (2013): Are there Asymmetric Effects of Monetary Policy in India?

Abstract

The paper attempts to analyse asymmetric effects of monetary policy in India using quarterly data from 1996-97Q1 to 2011-12Q4. It finds that an unanticipated hike and an unanticipated cut in policy rate have a symmetric impact of on real GDP growth, but differentially impact the components of real aggregate demand. While the impact on real investment is symmetric, it is asymmetric on real private and government consumption in that while an unanticipated cut in policy rate leads to their increase, an unanticipated hike in policy rate has no impact on them. The impact on inflation is also symmetric. An anticipated policy rate change also has a negative impact on real GDP growth as well as on the components of real aggregate demand, except for real government consumption. However, there are ranges where anticipated policy rate changes become neutral to components of aggregate demand and, thus, on inflation, ranging from 6.25 per cent to 7.0 per cent.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary Policy, Asymmetry, Inflation, Policy Rate
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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