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A Policy Rate Channel Testing of Monetary Policy Transmission Mechanism

A Policy Rate Channel Testing of Monetary Policy Transmission Mechanism
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Author(s): Firdous Ahmad Malik (University of the People, California, United States), Deepanjali Das (Lucknow University, India), Laeeq Razzak Janjua (Vistula University, Warsaw, Poland)and Hebatallah Adam (O.P. Jindal Global University, India)
Copyright: 2023
Volume: 19
Issue: 1
Pages: 16
Source title: International Journal of E-Business Research (IJEBR)
Editor(s)-in-Chief: Jeffrey Hsu (Fairleigh Dickinson University, USA)
DOI: 10.4018/IJEBR.317887

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Abstract

Against the backdrop of invariant financial and economic reforms, there are presumptive changes in the confines and speed with which target variables respond to Reserve Bank of India (RBI) policy signals. The result of transmission lags from monetary policy to the real sector is unmistakable. The empirical approach used in this study is a natural progression from the VAR model videlicet, co-integration, and error correction techniques used to overcome the problem of spurious regression associated with non-stationary time-series data. After a shock induces disequilibrium, the speed and degree of adjustment return to a balanced state but with some time lag. The results indicate that in the two-step verification model, it takes approximately 2.851 months for WACMR to fully respond to a change in policy rates, whereas in the second step, it takes approximately 10.33 months for base rates to reach their complete pass-through following changes in call money market and deposit rates.

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