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A monetary business cycle model for India.

Banerjee, S. and Basu, P. and Ghate, C. (2020) 'A monetary business cycle model for India.', Economic inquiry., 58 (3). pp. 1362-1386.

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.

Item Type:Article
Full text:(AM) Accepted Manuscript
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Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1111/ecin.12855
Publisher 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.
Date accepted:18 September 2019
Date deposited:20 September 2019
Date of first online publication:19 November 2019
Date first made open access:19 November 2020

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