Monetary policy model for India

Abstract

Based on a sample of 20 annual observations (1948-49 through 1967-68), a policy-oriented econometric model for the Indian economy with an emphasis on the monetary sector has been formulated, estimated, and analyzed. Besides national income and its components, the demand, supply, and equilibrium condition of each of the six kinds of financial assets (currency, bank reserves, government bonds, demand deposits, time deposits, and private non-bank liabilities with banks) were considered. Every effort was made to introduce as many policy variables in as many equations as permissible both on theoretical and on statistical grounds. The primary objective was to quantitatively evaluate the direct and indirect impacts of various policy variables on the model's endogenous variables. The model should be of help in understanding the portfolio management by the different sector of the economy.