Work

Monetary policy, stock market and inflation amid economic uncertainty: Fresh evidence from an emerging market (the Indian case)

Year: 2025

Type: article

Abstract: This study examines the transmission of monetary policy shocks on stock market returns, liquidity, expected inflation, and inflation under varying economic policy uncertainty (EPU) levels in the Indian context. Using a Smooth Transition VAR model, we find that contractionary monetary policy increases illiquidity and decreases returns during the high EPU regime but has minimal effects during the low EPU regime. Additionally, monetary policy effectively curtails expected inflation and inflation in a low EPU regime more than in a high EPU regime. The results emphasize monetary policy transmission via expectation channels over asset pricing channels.

Source: International Review of Finance

DOI: 10.1111/irfi.70016

Authors: Asis Kumar Sahu, Byomakesh Debata, Paras Sachdeva

Institutions: Birla Institute of Technology and Science, Pilani, Indian Institute of Technology Madras

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: bronze

OpenAlex ID: W4409406433

FWCI: 5.828

Cites: 51

Cited by: 3

Related to: 10