IMPACTS OF MONETARY POLICY ON THE AGGREGATE DEMAND IN INDIA

Abstract

This is a wide spread question “how the aggregate demand is affected by the monetary policy” also another important question is how monetary policy affects output and inflation. A monetary policy of the central bank of a country, framework seeks to attain the intended the objectives of the policy in terms of inflation and growth. nowadays, there appears to have broad agreement that monetary policy shows an influence on the actual economy, in short term but there is no certanity about long term. The majority of empirical evidence in the literature have validated this. Though, in what way and via which channels monetary policy effects the output and pricing remains a concerning and unresolved question. Extensive research has stressed the significance of various alternative channels.’ “ The literature has distinguished two types of monetary transmission channels: “ (i) neoclassical channels and (ii) non-neoclassical channels. The neoclassical channels concentrate on how interest rate fluctuations affecting total investment, consumption, and trade affect the final goals. Non-neoclassical channels work principally through changes in credit supply source and their influence on bank conduct and balance equilibrium sheets [Boivin et al., 2011]. The function of these channels in an economy is determined by the economy's level of development and the construction of its monetary system.”