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Though an accumulating body of study has analysed monetary policy transmission in India, there are few studies examining the differential impact of monetary policy action. Against this backdrop, this study aims to analyse the differential impact of monetary policy on aggregate demand, aggregate supply and their components along with the general price level in India.

The study develops a structural macroeconometric model, which is primarily aggregate and eclectic in nature. The generalized method of movements is used for estimation of behavioural equations, while a Gauss–Seidel algorithm is used for model simulation purposes.

The paper presents the results of two policy simulations from the estimated model that highlight the differential impact of monetary policy. The first one, hike in the policy rate by 5% and second is a reduction in bank credit to the commercial sector by 10%. The results from the first policy simulation experiment reveal that interest hike has a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is borne by investment demand and imports followed by private consumption. While as among the components of aggregate supply maximum impact is born by infrastructure output followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. The results from the second policy simulation experiment revealed that pure monetary shocks have a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is born by private consumption and imports followed by investment demand. While as among components of aggregate supply maximum impact is borne by infrastructure followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. From both policy simulation experiments, the study highlighted the relative importance of the income absorption approach as opposed to the expenditure switching effect.

The results obtained in this study provides a strong framework for design the monetary policy framework. The results are in a view of the differential impact of monetary policy action among the components of both aggregate demand and aggregate supply. This reflection of differential impact has immense significance for the macroeconomic stabilization as the central bank will have to weigh the varying repercussion of its actions on different sectors. For instance, the decline in output after monetary tightening might be conceived as mild from an overall perspective, but it can be appreciable for some sectors. This differential influence will have an implication for policy design to care for distributional aspects, which otherwise could be neglected/disregarded. Similarly, the output decline may be as a result of either consumption postponement or a temporary slowdown in investment. However, the one emanating due to investment decline will have lasting growth implications compared to a decline in consumer demand. In addition, the relative strength of expenditure changing or expenditure switching policies of trade balance stabilization may have varying consequences in the aftermath of monetary policy shock. Accordingly information on the relative sensitiveness/insensitiveness of different sectors/ components of aggregate demand towards monetary policy actions furnish valuable insights to monetary authorities in framing appropriate policy.

The work carried out in the present paper is motivated by the fact that although a number of studies have examined the monetary transmission mechanism in India, a very few studies examining the differential impact of monetary policy action. However, to the best of the knowledge, there is no such studies, which have examined the differential impact of monetary policy in the structural macro-econometric framework. The paper will enrich the existing literature by providing a detailed account of the differential impact of monetary policy among the components of both aggregate demand and aggregate supply in response to an interest rate hike, as well as a decrease in the money supply.

This paper aims to empirically examine how shocks to monetary policy measures (the short-term nominal interest rate and broad money supply) affect macroeconomic aggregates, namely, output growth of the economy, national price levels and the nominal exchange rate.

Johansen’s (1995) cointegration technique and error correction models are used to explore the long-run relationship among variables. To investigate how macroeconomic aggregates respond to a one-standard deviation shock to the underlying monetary measures, the authors estimate impulse response functions based on error correction models. The study uses quarterly data covering the period 1980-2009.

The results provide evidence that there is a long-run stable relationship between the authors' monetary measures and the underlying macroeconomic aggregates. They also find that the industrial production adjusts at a faster speed relative to commodity prices and the exchange rate over the examined period. Further, they show that the short-term interest rate has relatively stronger effects on output as compared to broad money supply, whereas prices and exchange rates adjust more quickly to their long-run equilibrium when money supply is used as a measure of monetary policy. Finally, the authors find significant evidence of a price puzzle regardless of whether they consider a closed or an open economy case. However, an initial appreciation of exchange rate is observed in response to a one-standard deviation shock to money supply, indicating the overshooting hypothesis phenomenon.

The findings of the analysis suggest that the interest rate-oriented monetary policy is more effective when the monetary authorities’ objective is to enhance the output growth of the economy. However, in case of inflation targeting, the broad money supply seems a more appropriate instrument. Our findings also suggest that the monetary policy has a significant role in stabilizing both real and nominal sectors of the economy.

The main value of this paper is to examine the significance of monetary policy for a developing and relatively small open economy, namely, Pakistan. The authors use the error correction model, which improves the estimation by accounting for the long-run association. They also take into account the world oil prices by including the world commodity price index as a control variable in their empirical investigation. Finally, they utilize quarterly data rather than annual, and they cover a relatively recent sample period.

This paper examines the performance of nominal income targeting as a possible direction for monetary policy. The existing literature consists of historical counterfactual simulations to determine how economic performance might have differed if this policy had been adopted. To provide better assessment of the performance of nominal income targeting in practice, this paper focuses on Germany where this policy is implemented. The results highlight the importance of price stability in the design of German monetary policy. Furthermore, causality test results indicate a causal flow from money to nominal income. However, there is no evidence of a causal flow from nominal income to various definitions of money. These results confirm the Bundesbank’s claim that monetary growth runs ahead of fluctuations in nominal income in Germany. That is, the Bundesbank is able to target nominal income by using a monetary aggregate. These findings challenge the skepticism regarding the use of a monetary aggregate as the intermediate target, which has arisen mainly from the US experience.

This paper uses Sims‐Granger causality to examine the causal relationships between (1) the money stock and income, and (2) the reserve money base and the money stock for India. These relationships are empirically investigated so as to determine the role of money in economic activity and the role and channels of monetary policy in a developing economy. Both the conventional regression method used by Sims and the more recent time‐series method developed by Box and Jenkins are utilised in the tests. The results indicate (a) that money does not play a causal role in economic activity while conventional money‐demand functions with income as the right‐hand side variable are vindicated, and (b) there is weak support for the Central Bank's alleged control over the money stock through control over the reserve money base. The differing nature of the results with respect to the two methods adopted point towards the sensitivity of the Sims‐Granger causality test to the type of filtering procedure chosen.

The purpose of this paper is to analyze if the unconventional monetary policy, known as quantitative easing (QE) practiced by central banks in the USA, the UK, and Japan was effective to increase the market share after subprime crisis.

In order to analyze the effect of the QE on the stock markets of the USA, the UK, and Japan, the authors use an ARDL model to find the long-run relationship among the variables.

The findings denote that the QE implemented by the central banks in the USA, Japan, and the UK had a positive impact on their stock markets.

The results of the paper give some new insights about the conduction of monetary policy when the interest rates are close to zero.

The focus of this paper is the economic theory of the plans for the European Monetary Union. Part 1 demonstrates that economists, bankers and policy makers know very little about monetary policy. Part 2 explains the errors of the common practice of defining money by its functions. Because any monetary policy must rest on a definition of money it seems reasonable to conclude that a flawed definition might lead to problems with monetary policy. Part 3 applies this insight to the plans for a common currency in Europe. Because of uncertainties about the timing and details of the implementation, some important considerations are necessarily speculative. They are relegated to appendices. Appendix 1 comments on the timing and authorship and responsibility for the official reports with their unspecified authors. Appendix 2 supplies some grounds for doubting the ultimate durability of the European Monetary Union focusing on reasons that are historical, economic and pragmatic. Because the entire movement is driven by politics, not economics, Appendix 3 considers some of the relevant political issues. The conclusions summarize and speculate on possible reasons for successful outcomes.

The purpose of this paper is to test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation.

The authors use two alternative vector autoregressive systems in order to construct the fiscal policy shocks: one with the simple sum monetary aggregate MZM and one with the alternative CFS Divisia MZM aggregate. From each one of these systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal shocks were used next to empirically examine their effects on the growth rate and cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock.

The authors come up with three key findings: first, all fiscal multipliers are below unity but with signs as predicted by Keynesian theory. Second, government expenditures have a larger impact as compared to the tax policy and finally, positive government spending shocks are more significant than negative spending shocks. All these results are in line with previous studies and are robust through many tests using structural identification proposed by Blanchard and Perotti (2002).

The empirical findings in this manuscript can be used for conducting a more efficient fiscal policy. The importance of government spending shocks is empirically verified along with the asymmetries related to price stickiness predicted by Keynesian theory. According to the results an efficient fiscal policy would: in terms of an expansionary policy, use government spending as a means to stimulate the economy instead of tax cuts and in the case of a contractionary policy use government revenue (higher taxes) so that the costs of this policy in terms of output lost are lower.

In this study the authors introduce three main innovations: first, to the best of our knowledge the Divisia monetary aggregates have not yet been used to previous research pertaining to fiscal policy. Second, following Cover’s (1992) procedure of identifying monetary policy shocks we extract the unanticipated fiscal policy shocks on government spending and revenue. Finally, the authors explicitly test for the asymmetric effects on the growth rate and the cyclical component of real private GNP of a contractionary and expansionary fiscal policy.

The purpose of the paper is to address money demand instability and investigate the impact of economic uncertainty, stock market uncertainty and monetary uncertainty on money demand in India over the period 2003Q1–2019Q4.

The study checks the stationarity of the variables through standard unit root tests. Based on the mixed order of variables' integration, the authors adopt the autoregressive distributed lag (ARDL) model to confirm the cointegration and check the stability of the money demand function (MDF).

The findings confirm the presence of cointegration and reveal a well-specified MDF, which exhibits stable parameters. Besides the conventional variables, all forms of uncertainties emerge as the essential long-term determinants of money demand. Long-run findings show that people demand more money to avoid the future financial crunch amid high economic, monetary and stock market uncertainties.

The paper recommends, based on the findings, incorporating the monetary aggregates in the monetary policy framework as one of the essential information variables to control the fluctuation in the price level under the current flexible inflation targeting (FIT) regime.

The findings also add to the knowledge of economic agents in terms of the overall response of individuals to changes in different forms of uncertainties, thereby helping to formulate their portfolios more diligently.

The current work is the first of its kind in the Indian context. The incorporation of uncertainty measures in the MDF adds to the existing knowledge on money demand.

The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam.

The study uses data over the period of 2008–2018 and applies the vector autoregression model, namely recursive restriction and sign restriction approaches.

The main empirical findings are as follows: a contraction of the money aggregate significantly leads to the real effective exchange rate (REER) depreciating and then appreciating; a tightening of the interest rate immediately causes the REER appreciating and then depreciating; and both the money aggregate and the interest rate strongly determine fluctuations of the REER.

The quantitative results imply that the MP affects the REER considerably.

The conventional and new inflation bias theories present two distinct facets to explain the outcome of excess inflation without output gains by a discretionary central banker. First is the temptation to achieve a higher than potential output, and, second is not to let it falter. The authors explicitly account for these two distinct dimensions in empirical formulations both exogenously and endogenously. Specifically, the purpose of this paper is to investigate what monetary discretion can and cannot do in terms of dual objectives – inflation and growth – across boom and bust cycles, both directly and indirectly.

(i) Segregate the economic activity into boom and bust cycles; (ii) Explicitly account for the two dimensions of conventional and new inflation bias theories; and (iii) model and estimate the direct and indirect effects of monetary discretion across business cycles.

The results indicate considerable asymmetries in the effects of monetary discretion and distribution thereof across objectives and cycles. The direct impact of monetary discretion tends to induce significantly higher inflation in boom and bust cycles, while it exerts a positive but insignificant effect on output. The inflation effects are more pronounced in boom than bust cycles and vice versa are the output effects. The indirect effects on output via inflation are significantly pernicious, which are more pronounced in expansions than recessions.

In a nutshell, instead of benefiting, monetary discretion tends to harm in terms of both the dual policy objectives, which cautions about its well calculated and constrained use only.