The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Prachi Mishra, Peter Montiel, and Rajeswari Sengupta
INTERNATIONAL MONETARY FUND
We examine the strength of monetary transmission in India, using a conventional structural
VAR methodology. We find that a tightening of monetary policy is associated with a
significant increase in bank lending rates and conventional effects on the exchange rate,
though pass-through to lending rates is only partial and exchange rate effects are weak. We
could find no significant effects on real output or the inflation rate. Though the message for
the effectiveness of monetary transmission in India is therefore mixed, our results for India
are more favorable than is often found for other developing countries.