Abstract
ABSTRACT Our study employs a non-recursive Structural Vector Autoregressive Model (SVAR) to examine to how monetary policy signals transmit across the money, treasury bills, bonds, forex, and the stock market in India and in the process unravel the relative efficacy of various monetary policy signalling instruments on these financial market variables. This exercise is conducted for two distinct monetary policy regimes -Multiple Indicator Regime and Flexible Inflation Targeting Regime. Our results indicate that the transmission of monetary policy differs not only across various segments of the financial markets, but is also sensitive to the choice of monetary policy instruments used by the Reserve Bank of India (RBI) under different regimes. In a bid to heighten the efficacy of monetary policy signals it is hence suggestive that developing economies with high inflation should move towards an inflation targeting regime.
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