A Monetary Business Cycle Model for India

Banerjee, S; Basu, P; Ghate, C

doi:10.1111/ecin.12855

A Monetary Business Cycle Model for India

Banerjee, S; Basu, P; Ghate, C

Authors

S Banerjee

Professor Parantap Basu parantap.basu@durham.ac.uk
Professor

C Ghate

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.

Citation

Banerjee, S., Basu, P., & Ghate, C. (2020). A Monetary Business Cycle Model for India. Economic Inquiry, 58(3), 1362-1386. https://doi.org/10.1111/ecin.12855

Journal Article Type	Article
Acceptance Date	Sep 18, 2019
Online Publication Date	Nov 19, 2019
Publication Date	Jul 31, 2020
Deposit Date	Sep 20, 2019
Publicly Available Date	Nov 19, 2020
Journal	Economic Inquiry
Print ISSN	0095-2583
Publisher	Wiley
Peer Reviewed	Peer Reviewed
Volume	58
Issue	3
Pages	1362-1386
DOI	https://doi.org/10.1111/ecin.12855
Public URL	https://durham-repository.worktribe.com/output/1286018

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Copyright Statement
This is the accepted version of the following article: Banerjee, S, Basu, P & Ghate, C (2020). A Monetary Business Cycle Model for India. Economic Inquiry 58(3): 1362-1386 which has been published in final form at https://doi.org/10.1111/ecin.12855. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for self-archiving.