Liquidity Management and Monetary Policy: From Corridor Play to Marksmanship

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


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.


Monetary Policy Central Bank Euro Area Money Market Liquidity Management 
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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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