Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/298998 
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Central Banking Theory and Practice [ISSN:] 2336-9205 [Volume:] 9 [Issue:] 3 [Year:] 2020 [Pages:] 163-182
Publisher: 
Sciendo, Warsaw
Abstract: 
Employing Factor Augmented Vector Autoregression (FAVAR) model where factors are obtained using the principal component analysis (PCA) and the parameters of the model are estimated using Vector Autoregression framework, we analyse how changes in monetary policy variables impact inflation, output, money supply, and the financial sector in India. Our results for the period 2001:04 to 2016:03 show that the benchmark FAVAR model showed more reliable results than baseline VAR model. Benchmark FAVAR model shows the existence of weak "liquidity puzzle" in India. The impulse responses from the FAVAR approach reveal that monetary policy is more efficient in explaining the variations in inflation rather than stimulating output indicating its effectiveness in attaining the objective of price stability.
Subjects: 
Factor Augmented VAR
Monetary policy
Economic growth
Inflation
JEL: 
C32
E52
O47
E3
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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