Are the Effects of Monetary Policy Asymmetric in India? Evidence from a Nonlinear Vector Autoregression Approach

摘要

Even though there exist quite a number of studies analysing the impact of monetary policy in India, none of these papers looks into the whether monetary policy has an asymmetric impact on the output and price level. In light of this, this paper uses Indian quarterly data for the period of 1960:Q2-2011:Q2 to test for nonlinearity in a standard monetary vector autoregression (VAR) model comprising of output, price and money, using an estimation strategy that is consistent with wide range of structural models. We find that positive and negative monetary policy shocks have an immediate short-lived and a delayed persistent asymmetric effect on output and price, respectively. In addition, we show that compared to a linear VAR, the nonlinear VAR has a bigger impact of a monetary policy shock on output and price. In general, we conclude that there are clear gains from modelling monetary policy using a nonlinear VAR framework.