Unconventional monetary policy and spillovers of tapering on Indian economy

Abstract

Till about a decade ago, the economies around the world based their monetary policies on the basis of learnings drawn from the great depression of 1930s. These policies are famously referred as conventional monetary policies. And thus the great financial crisis of 2008-09 led to initial responses based on these policies. But the persistence of the crisis also led to what is called as unconventional monetary policies. These unconventional policies are having far reaching effects in ways not expected or understood earlier. Although many studies have been done on the spillover effects of the initial phases of these unconventional monetary policies, the exiting phase, from these policies, is an ongoing concern world over. Therefore, this study will focus on the spillovers of unconventional monetary policies of Federal Reserve on India. Further the focus will be on the tapering phase of the policy of Quantitative Easing and other unconventional policy measures. This study consists of two parts. In the first part, a detailed account of Unconventional monetary policy has been given along with four examples of conduct of Unconventional monetary policy by Federal Reserve, Bank of England, European Union and Bank of Japan. In the second part, a published paper namely, ‘Tapering Talk: The Impact of Expectations of Reduced Federal Reserve Security Purchases on Emerging Markets’ was selected and its conclusions where examined for the particular case of India through a simple data analysis and trend analysis seen through charts.