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Inflation targeting in India: issues and prospects

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  • Raghbendra Jha

Abstract

This paper evaluates the case for inflation targeting (IT) in India. It states the objectives of monetary policy in India and argues that, with widespread poverty still present, inflation control cannot be an exclusive concern of monetary policy. The rationale for IT is spelt out and found to be incomplete. The paper provides some evidence on the effects of IT in developed and transition economies and argues that although IT may have been responsible for maintaining a low inflation regime, it has not brought down the inflation rate itself substantially and or changed the volatility of the exchange rate. Output movements in transition countries adopting IT have been higher than in developed market economies. I discuss India's experience with using nominal targets for monetary policy and why India is not ready for IT. Further, even if India's central bank wanted to, it could not pursue IT because the short-term interest rate does not have a significant effect on inflation. The paper concludes by listing monetary policy options for India.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 22 (2008)
Issue (Month): 2 ()
Pages: 259-270

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Handle: RePEc:taf:irapec:v:22:y:2008:i:2:p:259-270

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Related research

Keywords: inflation targeting; economic growth; India;

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References

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  1. Luis Ignacio Jácome & Francisco F. Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence From Latin America and the Caribbean," IMF Working Papers 05/75, International Monetary Fund.
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Citations

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Cited by:
  1. Inoue, Takeshi & Hamori, Shigeyuki, 2009. "What Explains Real and Nominal Exchange Rate Fluctuations? Evidence from SVAR Analysis for India," IDE Discussion Papers 216, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  2. Muneesh Kapur & Michael Debabrata Patra, 2012. "Alternative Monetary Policy Rules for India," IMF Working Papers 12/118, International Monetary Fund.
  3. Muneesh Kapur & Michael Debabrata Patra, 2010. "A Monetary Policy Model without Money for India," IMF Working Papers 10/183, International Monetary Fund.
  4. Gerald Epstein, 2009. "Rethinking Monetary and Financial Policy: Practical suggestions for monitoring financial stability while generating employment and poverty reduction," Published Studies ilo_epstein11_09, Political Economy Research Institute, University of Massachusetts at Amherst.
  5. Epstein, Gerald, 2009. "Rethinking monetary and financial policy : practical suggestions for monitoring financial stability while generating employment and poverty reduction," ILO Working Papers 434439, International Labour Organization.
  6. Syed Kumail Abbas Rizvi & Bushra Naqvi & Sayyid Salman Rizavi, 2012. "What Does Pakistan Have to Join the Inflation Targeters’ Club—a Royal Flush or a Seven-Deuce Offsuit?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 17(2), pages 35-62, July-Dec.
  7. Mishra, Ankita & Mishra, Vinod, 2012. "Evaluating inflation targeting as a monetary policy objective for India," Economic Modelling, Elsevier, vol. 29(4), pages 1053-1063.

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