Monetary Policy Impact on Output

The monetary policy of any country uses various monetary policy tools in order to achieve a balance between price stability and higher growth. The aim of this paper is to study the impact of the monetary policy on the output level of the country. It analyses the high interest rate policy of monetary authority. The literature provides ample evidence of a positive or no impact of interest rate on output level. The paper thus explores these possibilities and accordingly justifies the high interest rate policy of the RBI, especially post global financial crisis. The Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration is employed for studying short-run dynamics and long-run cointegration of the output to the other macroeconomic and monetary variables. The results suggest, the high interest rate monetary policy is not anti-growth.