scholarly journals Liquidity management and monetary transmission: empirical analysis for India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vikas Charmal ◽  
Ashima Goyal
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Weighted Average ◽  
Policy Instrument ◽  
Policy Framework ◽  
Monetary Transmission ◽  
Content Type ◽  
Repo Rate ◽  
Pass Through ◽  
The Impact

PurposeA change in monetary operating procedures provides a natural experiment which is used to evaluate, first, whether Indian monetary policy transmission is better when durable liquidity is in surplus or when it is in deficit; second whether it is better with interest rates as the policy instrument or quantity of money or a mixture of the two.Design/methodology/approachThis study first shows that the period of analysis can be divided into two separate regimes one of liquidity surplus (2002–2010) and the other of deficit (2011–2019).This study then estimates separate structural vector auto-regressions (SVARs) for the financial and real sector, with relevant exogenous foreign, policy and other variables for each of the periods as well as SVARs for the whole period with alternative operating instruments.FindingsMonetary transmission from the repo rate was better during the period the liquidity adjustment facility (LAF) was in surplus with the central bank in absorption mode denoting excess durable liquidity. Pass through was faster and the repo rate had a greater influence on other variables. The impact of the rate on output gap exceeds that on inflation. The weighted average call money rate was found to outperform others as the operating target. Monetary policy has evolved so that policy rates are more effective in transmission compared to money supply, but best results are when durable liquidity is also in surplus.Originality/valueThe results contribute to ongoing debates on the Indian monetary policy framework and give useful inputs for policy in emerging markets where research is scarce. They suggest keeping the LAF in deficit mode over 2011–19 was not optimal.

Monetary Policy Transmission in India

2019 ◽  
pp. 83-123
Author(s):  
K. Kanagasabapathy ◽  
Rekha A. Bhangaonkar ◽  
Shruti J. Pandey
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Policy Framework ◽  
Real Sector ◽  
Policy Cycle ◽  
Liquidity Management ◽  
Reserve Bank ◽  
Policy Transmission ◽  
Repo Rate ◽  
The Impact

K. Kanagasabapathy, Rekha A. Bhangaonkar, and Shruti Pandey address the issue whether the rate and quantum channels were complementary to each other over the period April 2001 to December 2017. Reserve Bank of India’s (RBI) monetary policy framework is characterized by use of multiple instruments combining adjustments in policy rate with a complex use of liquidity management operations, despite changes in the functioning of the monetary policy. They study easing and tightening phases of the policy cycle and bring out stylized facts on several relationships highlighting the impact of policy rate changes and liquidity conditions on short and medium term market interest rates and output and prices. An empirical analysis confirmed the linkage between the repo rate and the market related rates. On the quantum side, a bi-causal relationship is observed between repo and liquidity. Money and financial transmission market transmission is better established than that to the real sector. Shruti Pandey and K. Kanagasabapathy have worked on the revised version for the new edition.

Symmetric and asymmetric adjustment of bank deposit interest rates: empirical evidence from Kenya

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moses Nzuki Nyangu ◽  
Freshia Wangari Waweru ◽  
Nyankomo Marwa
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Asymmetric Adjustment ◽  
Deposit Rate ◽  
Content Type ◽  
Long Run ◽  
Adjustment Speed ◽  
Short Run ◽  
Pass Through

PurposeThis paper examines the sluggish adjustment of deposit interest rate categories with response to policy rate changes in a developing economy.Design/methodology/approachSymmetric and asymmetric error correction models (ECMs) are employed to test the pass-through effect and adjustment speed of deposit rates when above or below their equilibrium levels.FindingsThe findings reveal an incomplete pass-through effect in both the short run and long run while mixed results of symmetric and asymmetric adjustment speed across the different deposit rate categories are observed. Collusive pricing arrangement behavior is supported by deposit rate categories that adjust more rigidly upwards than downwards, while negative customer reaction behavior is supported by deposit rate categories that adjust more rigidly downwards than upwards.Practical implicationsEven though the findings indicate an aspect of increased responsiveness over the period, the sluggish adjustment of deposit rates imply that monetary policy is still ineffective and not uniform across the different deposit rate categories.Originality/valueTo the best of the authors' knowledge, this is the first study to empirically examine both symmetric and asymmetric adjustment behavior of deposit interest rate categories in Kenya. The findings are key to policy makers as they provide insights on how long it takes to adjust different deposit rate categories to monetary policy decisions. In addition, the behavior of deposit rates partly explains why interest rates capping was imposed in Kenya in 2016.

scholarly journals Evaluation of the Impact of the Bank of Russia Key Rate on the Commercial Banks’ Deposit Policy

2020 ◽  
pp. 99-111
Author(s):  
M. N. Konyagina ◽  
I. R. Meurmishvili ◽  
A. A. Dochkina
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Commercial Banks ◽  
Policy Instruments ◽  
Policy Instrument ◽  
Credit System ◽  
Leading Role ◽  
State Of The Economy ◽  
Current Impact ◽  
The Impact

The monetary policy of the Central Bank is in the sphere of interests of economists of various specializations. Determining the value of money in the economy, the money supply, and ensuring the effective functioning of the national payment system, the regulator has a significant impact on the state of the economy and determines the prospects for its development. One of the most important monetary policy instruments is the key rate. However, the efficiency of its application in different economies at different historical periods is different.At the same time, commercial banks, being the core of the credit system, are extremely dependent on the volume and quality characteristics of accumulated deposits. Private clients’ deposits are an important resource for both short-term and long-term operations of credit organizations. In Russia, banks play a leading role in the financial market. In this regard, the evaluation of the impact of a key rate as an important monetary policy instrument on the banks’ deposit policy is of particular relevance in the current state of the Russian economy. Therefore, determining as an aim of the research the evaluation of the current impact of the Bank of Russia key rate on the Russian credit organizations’ deposit policy, the authors sorted out the necessary relevant data on interest rates and deposit volumes in Russian commercial banks in 2014–2018, assessed the strength of the relationship between the Bank of Russia key rate and banks’ deposit rates and the volume of deposits in the country, identified the problems of implementing monetary policy in Russia and evaluated the effectiveness of the key rate as the monetary policy tool.

Fed move boosts tight Latin American monetary policy

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Latin American ◽  
Commodity Prices ◽  
Content Type ◽  
The Us ◽  
Capital Outflows ◽  
Government Bond Markets ◽  
The Impact ◽  
First Time

Subject The impact of US monetary policy tightening. Significance Following the US Federal Reserve's (Fed) historic decision to raise rates for the first time since 2006, the start of the Fed's monetary tightening cycle is accentuating the hawkish stance of Latin America's main central banks. This comes amid a dramatic sell-off in commodity markets, persistent concerns about China's economy and a severe deterioration in economic conditions across the region. Impacts EM asset prices have remained relatively resilient to the rise in US interest rates, in stark contrast to the 'taper tantrum' in 2013. Hitherto-resilient regional local currency government bond markets will face foreign capital outflows due to falling commodity prices. The Brazilian real is 2015's worst-performing major EM currency, but due largely to political and economic difficulties at home.

Monetary policy influences in Australian housing markets

2015 ◽  
Vol 8 (2) ◽  
pp. 265-286 ◽  
Author(s):  
Gregory Costello ◽  
Patricia Fraser ◽  
Garry MacDonald
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
House Prices ◽  
Housing Markets ◽  
Empirical Method ◽  
Capital City ◽  
Monetary Policy Shocks ◽  
Content Type ◽  
Policy Shocks ◽  
The Impact

Purpose – This paper aims to analyze the impact of common monetary policy shocks on house prices at national and capital city levels of aggregation, using Australian data and the Lastrapes (2005) two-part structural vector autoregressive (SVAR) empirical method. Design/methodology/approach – The Lastrapes (2005) two-part SVAR empirical method is applied to Australian housing market and macroeconomic data to assess the impact of common monetary policy shocks on house prices. Findings – Results show that while the impact of shocks to interest rates on aggregate house prices is almost neutral, the responses of state capital city house prices to the same shock can exhibit significant asymmetries. Originality/value – This paper contributes to the monetary policy–asset price debate by examining the influence of Australian monetary policy on capital city housing markets over the period 1982-2012. To the authors’ knowledge, this is the first empirical study that has adapted this Lastrapes (2005) methodology to the analysis of housing markets.

ECB may ease pressure on Central-Eastern central banks

2018 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Eastern Europe ◽  
Central Banks ◽  
Fuel Price ◽  
Content Type ◽  
Central Eastern Europe ◽  
Central Eastern ◽  
European Monetary Policy ◽  
The Impact

Subject The impact of ECB and US Fed policy on monetary policy in Central-Eastern Europe. Significance The pressure on central banks in Central-Eastern Europe (CEE) to tighten monetary policy is easing slightly. The ECB offset its decision to terminate its quantitative easing (QE) programme in December with a pledge to refrain from raising interest rates until the second half of 2019. However, there is domestic pressure for tighter policy in some of the CEE region. This is most pronounced in Romania, where the National Bank (NBR) has already raised interest rates three times this year to counter a surge in inflation. Impacts The increasing divergence between US and European monetary policy is likely to push the euro down against the dollar. The dramatic escalation in tensions over global trade will keep German investor confidence at around its lowest level since 2012. OPEC and Russian attempts to reverse supply curbs and fears over the fallout from a full-blown trade war will curb further fuel price gains.

scholarly journals Monetary Policy Shocks to Commodity Prices: Evidence from Pakistan

2019 ◽  
Vol 8 (1) ◽  
pp. 37-50
Author(s):  
Farhan Ahmed ◽  
Mushtaq Memon ◽  
Raza Ali
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Empirical Relationship ◽  
Commodity Prices ◽  
Commodity Price ◽  
Policy Instrument ◽  
Monetary Policy Shocks ◽  
Stable Relationship ◽  
Policy Shocks ◽  
The Impact

Monetary policy is always a dynamic attribute on commodity prices in the economy. This article examines the empirical relationship between monetary policy and commodity price by employing a vector auto-regression (VAR) Model to show its response in the case of Pakistan. In this paper, the research philosophy is employed based on Positivism with Deductive approach to recognizing the response of monetary policy shocks on commodity price. Recently, low-interest rates and excessive liquidity play a dynamic role in affecting the prices of the commodities market. Furthermore, the impact of monetary policy rate show significant result and seems to be huge in the economy of Pakistan massively. Besides, there is a stable relationship between monetary policy instrument and commodity prices even though the current financial crisis. 

scholarly journals The Effects of Monetary Policy on House Prices in Spain: the role of the economic and monetary union membership in the housing bubble prior to the great recession

2018 ◽  
Vol 2 (2) ◽  
pp. 5
Author(s):  
Tibor Pál
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
House Prices ◽  
Monetary Transmission ◽  
Interest Rate Policy ◽  
Housing Boom ◽  
Rate Policy ◽  
The Impact

Aim: This paper aims to discover the evolution of monetary transmission in Spain by focusing on the short-term interest rate, credit aggregates and house prices through different stages of economic development and European integration between 1975 and 2008. In addition, the analysis devotes special attention to the interval of the last housing boom, in order to reveal the importance of the interest rate policy of the ECB.Design / Research methods: The study applies a tri-variate autoregressive model assigned to three overlapping periods outlined by regime shifts in the Spanish economy. The estimation output determines the strength and persistency of the links between interest rates, credit aggregates and house prices. Consequently, the results of the econometric analysis provide proper base for comparison in order to identify the dominating channels of monetary transmissions through a prolonged period.Conclusions / findings: It is found that the transmission mechanism in Spain essentially altered over time since 1975. At the beginning of the full analysed interval the role of the credit channel was dominant, then its importance gradually diminished. After the EMU accession the traditional interest rate channel became the leading factor with an intensified and more persistent effect on house prices.Originality / value of the article: While there are numerous researches aimed at estimating the impact of monetary policy on the real economy, empirical studies focusing exclusively on the link between interest rate policy and house prices in Spain are still rare. As the present paper concentrates solely on the Spanish characteristics through extended interval, the study provides country-specific inferences.Implications of the research: Understanding the mechanism of the monetary policy effects on the housing sector is an essential aspect of designing policy interventions aimed at keeping house price development in check.Limitations of the research: Despite the significant results of the empirical analysis, the excessively dynamic increase in the property prices suggests that the factor of irrational expectations also played important role in the latest Spanish housing bubble.Key words: Monetary policy, VAR, ECB, Housing boom, Monetary transmission mechanismJEL: E52, E58.

scholarly journals Monetary policy collision on the performance of banking sector in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Belavadi Nikhil ◽  
Shivakumar Deene
Keyword(s):  
Monetary Policy ◽  
Public Sector ◽  
Central Bank ◽  
Interest Rates ◽  
Banking Sector ◽  
Banking System ◽  
Economic Situation ◽  
Content Type ◽  
Public Sector Banks ◽  
The Impact

Purpose The study aims to identify the impact of monetary policy tools on the performance of banks in India, and this could be an excellent suggestion to the regulators in framing the favourable interest rates which would meet the macroeconomic objectives of the Indian economy. Design/methodology/approach The design adopted in this study is descriptive and analytical research. Correlation and regression analysis is used to determine the relationship between bank rate (BR) and the performance of public sector banks in India. The sample chosen for this study is the public sector banks actively performing in India. Findings The performance is measured by taking three factors, and they are deposits, loans and advances (L&A) and total asset value of the banks. All three factors have shown an impact of BR on them during the five years. L&A affected the least amongst the three factors, but the other two were significantly impacted by the change in BR by the Reserve Bank of India. So, there should be a favourable fluctuation in the BR which will bring flexibility in the banking system, and they can perform well in the economy and the central bank also can concentrate on the macro-economic situation in the country. Originality/value This paper helps in giving suggestions to the Central bank, researchers, financial institutions to look into the financial performance and monetary policy rates and the central bank also can concentrate on the macro-economic situation in the country.

scholarly journals SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME

2021 ◽  
Vol 7 (3) ◽  
Author(s):  
Atiq Ur Rehman
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Full Employment ◽  
Central Banks ◽  
Policy Framework ◽  
Price Stability ◽  
Socioeconomic Indicators ◽  
Wide Range ◽  
The Impact

In its early history, monetary policy focused on numerous objectives, including stable growth, full employment, stable exchange rates and price stability. In the 1990s, many countries shifted their monetary policy framework from monetary aggregate/interest rate targeting to inflation targeting, in which inflation was regarded as the primary target of monetary policy, and interest rates the primary tool for achieving target inflation. Inflation targeting has diverted the focus of central banks from growth and employment to price stability. Unfortunately, there is considerable evidence which shows that inflation targeting frameworks are unable to control inflation in the way central banks want, and in fact lead to a greater departure from optimal growth and employment, the two key targets of sustainable development goals (SDGs). There is also evidence suggesting a strong association between inflation targeting and the move away from several other SDGs. Employing a systematic review of the related literature and Granger causality tests applied to data from various countries, this paper shows that inflation targeting fails to control inflation and has several undesirable impacts on a wide range of socioeconomic indicators. It is argued that the zero-interest regime is the optimal regime with respect to the impact on socioeconomic indicators, and also supports the interest free economy advocated by Islam.

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