Wolfe, S. and Amidu, M.
What role do Indian banks play in monetary transmission? , Southampton, UK University of Southampton
(University of Southampton Discussion Paper Series: Accounting and Finance).
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In developed economies, changes in the stance of monetary policy are followed by significant changes in the aggregate volume of bank lending. What we seek to examine is whether, in an emerging economy, there are cross sectional differences in the way that banks respond to policy shocks. Our analysis suggests that banks play a significant role in the transmission of monetary policy in India. Moreover, our results suggest that banks with varying characteristics react differently to policy shocks. While larger Indian banks are less affected by monetary policy changes, banks with a higher level of impaired loans and less capital are more affected. Our findings have implications for the distributional effects of monetary policy and the relationship between regulatory policy and stability of the economy.
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