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Liquidity Management and Monetary Policy: From Corridor Play to Marksmanship

  • Michael Debabrata Patra
  • Muneesh Kapur
  • Rajesh Kavediya
  • S. M. Lokare
Chapter

Abstract

From January 2014, the Reserve Bank of India (RBI) initiated a regime change in the conduct of monetary policy. Under its revised liquidity management framework, the operating target - the weighted average call money rate -has moved in a tight range of +/−40 bps with the long-run coefficient on the effective policy rate close to unity. Autoregressive distributed lag model estimates indicate that 74 % of the deviation of the call rate from the policy rate is adjusted in just one day in the most recent period as against only 24 % in earlier periods. Various segments of the money market are getting increasingly integrated and confirm a martingale process. A marked reduction in volatility in the operating target is validated by an I-GARCH (1, 1) model, though volatility brought on by large exogenous shocks appears regime-insensitive.

Keywords

Monetary Policy Central Bank Euro Area Money Market Liquidity Management 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Supplementary material

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Copyright information

© Springer India 2016

Authors and Affiliations

  • Michael Debabrata Patra
    • 1
  • Muneesh Kapur
    • 2
  • Rajesh Kavediya
    • 2
  • S. M. Lokare
    • 2
  1. 1.Reserve Bank of IndiaMumbaiIndia
  2. 2.Monetary Policy DepartmentReserve Bank of IndiaMumbaiIndia

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