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Effectiveness of Interest Rate Channel in Price and Output Determination in the Post Financial Liberalization Era of a Developing Economy: Evidence from India

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  • Mudabber AHMED

Abstract

This paper measures the magnitude of money and interest rate shocks in explaining the price and output movement in the post financial liberalization era of India. The objective is achieved through technique termed historical decomposition within the framework of Vector autoregressive Model. Analyses of historical decompositions show that interest rate shock plays a moderate role in determining price but not output in India. The paper also discusses potential reasons for failure of interest rate channel in India.

Suggested Citation

  • Mudabber AHMED, 2006. "Effectiveness of Interest Rate Channel in Price and Output Determination in the Post Financial Liberalization Era of a Developing Economy: Evidence from India," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3).
    • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:3_15
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