Bank Credit and Aggregate Demand: Evidence on Monetary Policy Transmission

This paper attempts to capture the influence of policy rate changes on demand for bank credit by the firms in India. The study intent to see the impact of change in monetary policy variable i.e., policy rate on the bank lending and deposit rates and further investigates the impact of changes in the bank credit on the real economic variable GDP. The pace and trend of economic activity is reflected by macroeconomic variables such as IIP, CPI/WPI, Exports and Stock price index which are thought to be the proximate measure of firms demand for bank credit . The paper also focus on the channels of transmission of monetary policy and studies interest rate channel impact "money view" and credit channel "credit view" by focusing on the total bank credit demand by the firms.