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The Sectoral Impact of Monetary Policy Transmission in India: A Panel VAR Approach

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  • Taniya Ghosh

Abstract

A structural panel vector autoregression (VAR) analysis is done to analyze the impact of monetary policy shock on people associated with various occupations. To understand the efficacy of bank lending channel, it is important to capture the differential occupation-wise effect of interest rate. The article finds that due to a monetary policy shock, the impulse responses capture the movement of loans in theoretically expected direction in most cases. The Granger causality tests successfully establish the long-run relationship between loans and interest rate. Also, the empirical results of good-performing states support the direct link between greater financial penetration and higher economic activity. Monetary policy shock significantly affects the lending behavior in all the sectors, except in agriculture and personal loans sector. The weak link of transmission in these sectors is mainly attributed either to lack of access to formal credit or a preference to informal credit sources over banks.

Suggested Citation

  • Taniya Ghosh, 2019. "The Sectoral Impact of Monetary Policy Transmission in India: A Panel VAR Approach," Emerging Economy Studies, International Management Institute, vol. 5(1), pages 63-77, May.
    • Handle: RePEc:sae:emecst:v:5:y:2019:i:1:p:63-77
    DOI: 10.1177/2394901519826705
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    References listed on IDEAS

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    3. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
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