Annual Conference

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International Macroeconomics, Money & Banking

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May 2016

The Transmission of Monetary Policy Within Banks:Evidence from India

Between 1996 and 2013, India’s central bank injected or drained liquidity from banks through changes in cash reserve requirements. We analyze the lending responses to these quantitative tools of monetary policy using branch level lending data. We focus on the withinbank variation across different branches of the same bank, controlling for variation between banks stressed in prior work through a saturated specification with interactive bank-year and region-year fixed effects. We show that the intra-variation is important and that branch level asset, liability, and organizational variables explain the intra-variation. Branches that are larger, make loans with smaller ticket size, are deposit-rich, make shorter term loans, have fewer non-performing assets, and with greater managerial capacity respond more to monetary policy. Transmission effects are more sluggish in state-owned banks.
Keywords: monetary policy, Banks, India
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