Log in
Forgot password ?
Become a member for free
Sign up
Sign up
Dynamic quotes 

4-Traders Homepage  >  News


Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesHot NewsMost Read NewsRecomm.Business LeadersCalendar 

Reserve Bank of India : RBI Working Paper Series 4 /2013 Monetary Policy Transmission Faster When Monetary System is in Deficit Mode

share with twitter share with LinkedIn share with facebook
share via e-mail
05/08/2013 | 02:36pm CEST

The Reserve Bank of India today placed on its website a Working Paper titled "Financial Development and Monetary Policy Transmission across Financial Markets: What Do Daily Data tell for India?" under the RBI Working Paper Series. The paper has been authored by Dr. Partha Ray and Shri Edwin Prabu.

Developed and integrated financial markets are pre-requisites for effective and credible transmission of monetary policy impulses. The more integrated financial markets are, in all likelihood the more would be the strength of monetary transmission across financial markets. It is in this context that this study looks into the extent of market integration and its implication for monetary policy taking the daily data for the period from January 2005 until November 2012.

In specific terms, the paper analyses two distinct but inter-related issues: (a) the extent of integration among different segments of financial markets; and (b) impact of monetary policy on financial markets. The markets considered are: i) money market (comprising the call money, the collateralised borrowing and lending obligation (CBLO) and the market repo markets); (ii) bond market (comprising Government securities and corporate bonds markets); (iii) forex market (proxied by exchange rate); and (iv) stock market (viz., NSE Nifty).

Using a structural vector autoregression (SVAR) model and imposing identifying restrictions from behavioral patterns of the Indian financial markets, the study finds that the impact of monetary policy on the financial markets differs considerably across four periods classified based on the liquidity position in the system. The transmission of monetary policy works well in the call money rate, as it is impacted immediately with robustness. As regards other financial market variables, except for the stock market, the study could find evidence of transmission from the monetary policy shocks.

Within the sample period of 2005-12, the study finds a distinct pattern of impact of monetary policy on financial markets depending on the stance of the monetary policy (i.e., whether it is expansionary or contractionary). The following results are highlighted in particular:

  • First, the transmission was swift and persistent for the period June 2010 to November 2012, when the liquidity was in deficit mode and the monetary policy was tightened.

  • Second, the transmission was also exhibited in the period January 2005 to November 2006, when the liquidity was in surplus mode but monetary policy was tightened due to inflationary pressures.

  • Third, transmission was not on the expected lines for December 2006 to November 2008 period and December 2008 to May 2010 period, perhaps on account of measures initiated during global financial crisis.

The evidence thus indicates that monetary policy transmission to financial markets in India is asymmetrical - it is faster and persistent when the monetary system is in deficit mode, than when it is in expansionary phase.

The Reserve Bank of India introduced the RBI Working Papers series in March 2011. These papers present research in progress of the staff members of the Reserve Bank and are disseminated to elicit comments and further debate. The views expressed in these papers are those of authors and not those of the Reserve Bank of India. Comments and observations may kindly be forwarded to authors. Citation and use of such papers should take into account its provisional character.

Sangeeta Das

Press Release : 2012-2013/1862

distributed by
share with twitter share with LinkedIn share with facebook
share via e-mail
Latest news
Date Title
02:33a AT&T discussed takeover in meetings with Time Warner - Bloomberg
02:32a Onvia to Announce Third Quarter 2016 Financial Results on Thursday, November 3, 2016
02:31a VTECH : to acquire German-based Snom Technology AG
02:30a BEBE STORES, INC. : Announces First Quarter Fiscal 2017 Earnings Release Date
02:28a MINISTRY FOR PRIMARY INDUSTRIES OF NEW ZEALAND : MPI ready to handle foot-and-mouth disease biosecurity
02:28a BLINA MINERALS NL : 21 Oct 2016 Settlement of Supreme Court Proceedings with Andes Resources
02:28a UNITED NATIONS GENERAL ASSEMBLY : Speakers Call for Fair Multilateral Trading System to Ensure Sustained Growth as Second Committee Debates Macroeconomic Policy Questions
02:28a CALIFORNIA AIR RESOURCES BOARD : CARB approves $363 million plan that includes putting more clean vehicles in disadvantaged communities
02:23a TALKTALK TELECOM : Boss claims villages won't get super fast cables if the company is split up
02:21a Brower Piven Encourages Investors Who Have Losses In Excess Of $100,000 From Investment In Wells Fargo & Company To Contact Brower Piven Before The Lead Plaintiff Deadline In Class Action Lawsuit – WFC
Latest news
Hot News 
-27.22%KELLER : Ground engineer Keller says will be hit by tough trading in Asia
-13.37%SENIOR : warns on 2016 performance due to heavy truck drag
9.03%AMERICAN EXPRESS : AmEx raises 2016 profit forecast; shares up 5.8 percent
-10.76%Ebay's holiday-quarter forecast disappoints; shares slump
4.98%WALGREENS BOOTS ALLIANCE : Rite Aid Push Back Merger Deadline
Most Read News
08:06p Microsoft shares hit high as cloud business flies above estimates
06:03p DUNKIN BRANDS : ' Brands says U.S. election jitters slowing store openings
07:42p TOURMALINE OIL : Shell sells non-core Canadian oil and gas assets for $1 billion
06:50p PayPal's shares rally on revenue beat, margin forecast
07:18p Tesla, rivals joust over how to put self-driving cars on the road
Most recommended articles
10/19DJGold Prices Boosted by Weaker Dollar
10/18 S&P 500 earnings now expected to show growth for third quarter
10/17DJS&P 500, Nasdaq Futures -- Technical Analysis
10/12DJOil Prices Slip as Global Supply Rises
08:20p AUS TIN MINING (ASX : ANW) Mt Cobalt Project update