Monetary Policy Transmission in an Emerging Market Setting

Bhattacharya, Rudrani; Patnaik, Ila; Shah, Ajay

doi:10.2139/ssrn.1751415

Cited by 9 publications

(7 citation statements)

References 21 publications

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“…The sluggish reaction of the real economic activity to domestic variables due to lack of a capable financial system along with structural rigidities provides us with an assumption that output responds to other shocks with a delay (Bhattacharya et al , 2011). However, it could have contemporaneous impact on interest rate and real exchange rate while the effects on house prices could be observed in the following quarters.…”

Section: Methodsmentioning

confidence: 99%

“…This in return might limit the size of the mortgage market and result in a weak or non-existent effect of monetary policy on this market. We should also note that monetary policy transmission in general is weak in emerging markets relative to advanced countries due to the lack of a well-functioning and deep financial system (Bhattacharya et al , 2011).…”

Section: Purposementioning

confidence: 99%

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Monetary policy and house prices in emerging markets

Tunç

Güneş²

2022

IJHMA

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Purpose This study aims to focus on two-way interaction between monetary policy and house prices in emerging economies. Design/methodology/approach This study uses panel structural vector autoregressive model. Findings The results show that real house prices decrease in response to a contractionary monetary policy shock. However, relative to advanced economies, the reaction of the prices is limited in emerging economies, pointing out the structural differences in emerging economies including the small size of the mortgage market and the lack of a well-functioning secondary market in housing finance. This study further finds that monetary policy is tightened in response to a positive shock to house prices. However, this response is also weak when compared to that response in advanced economies. Research limitations/implications These findings suggest that house price developments should not be prior target for monetary policies in emerging economies unless they become problem for financial stability or inflationary concerns. Originality/value Using a sample of inflation targeting emerging countries, this study contributes to the literature by conducting both panel setting and single-country analysis to explore the two-way dynamic relationships between the monetary policy and housing market in emerging economies.

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Section: Methodsmentioning

confidence: 99%

Section: Purposementioning

confidence: 99%

Monetary policy and house prices in emerging markets

Tunç

Güneş²

2022

IJHMA

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“…He finds evidence for the bank lending channel and also finds that monetary transmission through the asset price channel and exchange rate channel is very weak. Bhattacharya et al (2011) study monetary policy transmission in India through various channels and find that the exchange rate channel is the most effective channel which impacts inflation. Bhaumik et al (2011) examine the reaction of banks to monetary policy in India for both easy and tight monetary policy regimes.…”

Section: Backg Rou N Dmentioning

confidence: 99%

The role of liquidity in monetary policy transmission: Evidence from Indian banks¹

Ansari

Sensarma

2023

Scottish J Political Eco

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The role of bank liquidity in monetary policy transmission has received insufficient attention in the literature. Faced with monetary tightening, banks with more liquidity can sell off securities and protect their loan portfolios. We test this proposition using panel data for Indian banks during 2005–2020. Employing dynamic threshold panel regressions with liquid assets as the threshold variable, we show that bank lending declines with monetary policy tightening in low liquidity regimes, but not in high liquidity regimes. We also find evidence for different portfolio reallocation behaviour by banks in high versus low liquidity regimes in response to monetary policy changes.

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“…They opined that nature and effectiveness of the transmission mechanism for monetary policy varies according to the size, structure and openness of the economy. Bhattacharya et al, (2011) have suggested that the weakness in the financial system and the presence in large-scale of the informal sector led to inefficiency of monetary policy of developing countries. However, in the developing countries, the transmission mechanism of monetary policy is ineffective due to the underdevelopment of bond markets and also due to the low level of competition in banking system, the influence of the unofficially financial sector.…”

Section: Literature Reviewmentioning

confidence: 99%

Transmission mechanism of monetary policy in India - An Expost Study

Thirunavukkarasu¹,

Pradha²

2022

JDMS

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The transmission mechanism of monetary policy is correlated to lending which expands aggregate demand in the economy. The banking system form an important place in the monetary policy transmission. The channels of monetary policy transmission are: Interest Rate Channel, Credit or Loan Supply Channel, Exchange Rate Channel, and Asset Price Channel. The financial prices include interest rates, exchange rates, yields, asset prices, and equity prices, and the financial quantities consists of money supply, credit aggregates, supply of government bonds and foreign denominated assets. RBI uses various monetary policy frameworks over the years which is classified as pre-monetary targeting (1947 to 1984-85), monetary targeting (1984-85 to 1997- 98), Multiple Indicators approach (1998-99 to 2014), Inflation Targeting (from 2013 onwards), and Flexible Inflation Targeting (FIT). MCLR also drastically decreased for all these banks from 2019 to 2021. The external benchmark has increased for the three types of banks from 2019 to 2021. The repo rate gives a contrast data between pre and post FIT periods. The financial system is not fully developed which is a hindrance to the transmission mechanism. The cost of lending, issues in bond market, and pandemic situation related problems requires an appropriate transmission mechanism in the monetary policy of our country.

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Monetary Policy Transmission in an Emerging Market Setting

Cited by 9 publications

References 21 publications

Monetary policy and house prices in emerging markets

Monetary policy and house prices in emerging markets

The role of liquidity in monetary policy transmission: Evidence from Indian banks¹

Transmission mechanism of monetary policy in India - An Expost Study

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Monetary Policy Transmission in an Emerging Market Setting

Cited by 9 publications

References 21 publications

Monetary policy and house prices in emerging markets

Monetary policy and house prices in emerging markets

The role of liquidity in monetary policy transmission: Evidence from Indian banks1

Transmission mechanism of monetary policy in India - An Expost Study

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The role of liquidity in monetary policy transmission: Evidence from Indian banks¹