Monetary Policy and Informal FinanceEconomic and Political Weekly

By:
Rakesh Kumar, Saibal Ghosh
Date:
  • Article Title: Monetary Policy and Informal Finance
  • Title of Journal: Economic and Political Weekly
  • Vol #: 50
  • Issue #: 24

This article utilises state-level data for 1961-2012 to examine the interlinkage between informal finance and monetary policy. The analysis suggests that in response to a monetary contraction, borrowing from moneylenders declines, whereas that from landlords and relatives increases. In addition, the evidence also supports a hierarchy among the preferred financing choices. A key takeaway is that monetary policy needs to take on board its impact on the hitherto neglected informal sector.

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