WORKING PAPERS / WORK IN PROGRESS


Abstract: This paper evaluates the redistributive properties of a monetary policy shock in a continuous time heterogeneous agent model designed for India. In contrast to the existing literature on India that features limited heterogeneity, my model features a continuum of households indexed by the joint distribution of assets and idiosyncratic labor productivity. A number of model parameters are calibrated using numerous data sources. The steady state moments of household consumption and assets are matched with the moments from survey data to examine the reliability of the model. A one percentage point reduction in monetary policy in the span of one year leads to, on an average, 4% to 8.5% increase in household consumption, with the highest magnitude of increase observed in the households at the 25th to 75th percentile of the asset distribution.


Abstract: A change in the conventional monetary policy transmits to consumer prices and returns on financial assets, leading to a series of general equilibrium effects on household income and consumption. A simplistic dynamic general equilibrium model with household heterogeneity is developed to illustrate its transmission mechanism. The channels are then estimated by combining numerous household survey data and aggregate time series. Compensating variation arising from the policy change quantifies the welfare outcomes which varies significantly over different sources of heterogeneity and different channels of transmission. The findings suggest weak and asymmetric monetary policy transmission into consumer prices, leading to weak first- and second-order price effects on household consumption. Household asset positions predominantly determine welfare consequences. The distributional analysis highlights a pro-rich bias of policy tightening.



Abstract: Unconventional Monetary Policy (UMP) measures have gained prominence since the financial crisis 2008 and have almost transformed into the "new normal" for central banks during crisis recovery. India followed suit and introduced various UMP measures during the recent COVID-19 crisis to revive the economy from a pandemic-hit slowdown. We evaluate the impact of UMP measures adopted by RBI during the wake of the COVID-19 pandemic on Indian financial markets. We found evidence that UMP pass-through is in the right direction by boosting asset prices, lowering interest rates and bond yields in the financial market. In light of recent UMP exits by various central banks, we analyse the case of UMP exits in India and intend to provide policy recommendations for smoother exits.


Abstract: Bauer et al. (2022) derive market-based monetary policy uncertainty and uncover an `FOMC uncertainty cycle' characterized by a fall of uncertainty after FOMC announcements and its subsequent built-up. Then, the authors show that the financial markets' response to monetary policy announcements depends on the level of short-rate uncertainty on the day before the FOMC announcement. First, we reproduced the paper's findings, though with Matlab version-specific issues. Second, we tested the robustness of the two main results of the paper. We show that the uncertainty cycle in the monetary policy uncertainty is confirmed when the crisis period is included in the sample or when the median instead of the average of changes in the monetary policy uncertainty is considered. However, the FOMC uncertainty cycle does not appear when the monetary policy uncertainty index Husted et al. (2020) or the daily economic policy uncertainty index Baker et al. (2016) are used as uncertainty proxies.

PUBLICATIONS (BEFORE STARTING PHD :))