Measuring monetary policy and its impact on the bond market of an emerging economy

Sensarma, Rudra and Bhattacharyya, Indranil (2015): Measuring monetary policy and its impact on the bond market of an emerging economy. Published in: Macroeconomics and Finance in Emerging Market Economies , Vol. 9, No. 2 (2016): pp. 109-130.

Abstract

In view of multiple instruments used by many central banks in emerging market economies, we derive a composite measure of monetary policy for India and assess its impact on the yield curve. Our results show that while monetary policy has the dominant impact among macroeconomic variables on the entire term structure, it is particularly strong at the shorter end and on credit spreads. Shifts in the level of the government yield curve and credit spreads also lead to changes in monetary policy. In terms of robustness, our measure performs better than a narrative based measure of monetary policy available in the literature.

• Item Type: MPRA Paper
• Language: English
• Keywords: Term structure, yield curve, monetary policy, SVAR
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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