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Nexus of Monetary Policy and Productivity in an Emerging Economy: Supply-Side Transmission Evidence from India

Author

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  • R. L. Manogna

    (BITS Pilani K K Birla Goa Campus)

  • Deepali Desai

    (Christ University)

Abstract

Monetary policy and its transmissions have been debated by various schools of thought. The purpose of this paper is to empirically tests whether monetary policy has supply side effect influencing Indian economy’s total factor productivity. This study uses ARDL model to ascertain the long run relationship between monetary policy proxies and total factor productivity (TFP). Cointegration tests reveal that total factor productivity has a relationship with all of the monetary policy proxies. The ARDL results reveal a negative relationship between TFP and some monetary policy proxies in the short run, but a positive effect in the long run. These results showcase the possible supply side transmission of monetary policy in India, which can help in determining an optimal policy so as to augment TFP, an important driver of economic growth. The study only focusses on the Indian economy and spillover effects of other Asian economies on India’s TFP can also be examined.

Suggested Citation

  • R. L. Manogna & Deepali Desai, 2024. "Nexus of Monetary Policy and Productivity in an Emerging Economy: Supply-Side Transmission Evidence from India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(1), pages 45-61, March.
    • Handle: RePEc:spr:jqecon:v:22:y:2024:i:1:d:10.1007_s40953-023-00380-9
    DOI: 10.1007/s40953-023-00380-9
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    Keywords

    Monetary policy; Total factor productivity; Cointegration; ARDL; Long-run relationship;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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