Article

Financial Frictions and Monetary Policy Transmission in India

Kenneth Kletzer

in The Oxford Handbook of the Indian Economy

Published in print March 2012 | ISBN: 9780199734580
Published online November 2012 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780199734580.013.0022

Series: Oxford Handbooks

 Financial Frictions and Monetary Policy Transmission in India

More Like This

Show all results sharing these subjects:

  • Economics
  • Economic Development and Growth
  • Macroeconomics and Monetary Economics

GO

Show Summary Details

Preview

This article focuses on how the institutional structure of the financial sector and the role of financial intermediation in the Indian economy affect the transmission of monetary policy to the real economy. The article reviews a large amount of empirical literature on monetary transmission within the Indian context (with bank lending and the credit channel being more prevalent). One aspect that emerges from this discussion is that the effect of monetary disturbances on market interest rates, output, and prices, depends on the response of such disturbances to the yield curve. However, recent research on emerging markets shows that long-term rates are not responsive to changes in short-term rates. Thus, monetary policy has smaller effects on output and prices in emerging markets. In the Indian context, the shortcomings of the transmission mechanism further arise because of an underdeveloped financial system and the problem of credit rationing by formal sector banks.

Keywords: monetary policy; institutional structure; financial sector; Indian economy; monetary transmission; market interest rates

Article.  12547 words. 

Subjects: Economics ; Economic Development and Growth ; Macroeconomics and Monetary Economics

Full text: subscription required

How to subscribe Recommend to my Librarian

Buy this work at Oxford University Press »

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.