Journal Press India^®

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This paper studies the monetary transmission mechanism in India for the period 2004 April to 2015 March. It examines the relative importance of different channels of monetary transmission viz, interest, credit, asset price and exchange rate channel respectively. The study employs a series of VAR models to gain insight into how a change in the policy rate affects output and the price level. The importance of each of the channels is gauged by first taking the relevant channel variable as endogenous and then taking it as an exogenous variable in the VAR models to block off all interactions between the channel variable and all other endogenous variables. The results indicate the importance of the interest channel, credit channel and the asset price channel. The exchange rate channel is found to be weak for the Indian economy during the estimation period.

Keywords

Monetary transmission mechanism, Interest rate, Credit, Asset price, VAR

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