ORIGINAL RESEARCH article
Front. Hum. Dyn.
Sec. Digital Impacts
Volume 7 - 2025 | doi: 10.3389/fhumd.2025.1673850
Impact of Digital Payments on Monetary Policy Transmission in India: Evidence from the Post-Demonetization Era
Provisionally accepted
- 1Department of Economics, Faculty of Sciences and Humanities, SRM Institute of Science and Technology, Chennai, India
- 2SRM Institute of Science and Technology (Deemed to be University), Kattankulathur, India
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This study evaluates the impact of digital payments on monetary policy transmission in India postdemonetization. Using the Long Run ARDL Model, ARDL Short-Run Dynamics, and ARDL Error Correction Model, we find a significant negative correlation between digital payments and the Weighted Average Lending Rate on Fresh Rupees Loans (WALRF), with a 1 percent increase in digital payments leading to a 0.43 percent reduction in WALRF. Short-run dynamics show immediate impacts, enhancing competitive pressures within the banking sector. The error correction term indicates that monthly corrections account for 23 percent of long-term equilibrium variances, highlighting the stabilizing effects of digital financial infrastructures. Robustness tests, including the Breusch-Godfrey Serial Correlation LM Test, Breusch-Pagan-Godfrey Heteroskedasticity Test, Bounds Test for Cointegration, and CUSUM (Cumulative Sum) of squares test, confirm the results' reliability. The study advocates for promoting and integrating digital payment systems to enhance banking sector responsiveness and achieve broader macroeconomic goals.
Keywords: Banking sector, Digital payments, Monetary policy, ARDL Model JEL codes: E4, E5
Received: 26 Jul 2025; Accepted: 08 Sep 2025.
Copyright: © 2025 MOSTAFA. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
* Correspondence: HUSAM MOSTAFA, Department of Economics, Faculty of Sciences and Humanities, SRM Institute of Science and Technology, Chennai, India
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