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A Monetary Policy Model without Money for India


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  • Muneesh Kapur
  • Michael Debabrata Patra
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    A New Keynesian model estimated for India yields valuable insights. Aggregate demand reacts to interest rate changes with a lag of at least three quarters, with inflation taking seven quarters to respond. Inflation is inertial and persistent when it sets in, irrespective of the source. Exchange rate pass-through to domestic inflation is low. Inflation turns out to be the dominant focus of monetary policy, accompanied by a strong commitment to the stabilization of output. Recent policy actions have raised the effective policy rate, but the estimated neutral policy rate suggests some further tightening to normalize the policy stance.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/183.

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    Length: 62
    Date of creation: 01 Aug 2010
    Date of revision:
    Handle: RePEc:imf:imfwpa:10/183

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    Postal: International Monetary Fund, Washington, DC USA
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    Keywords: Economic models; Money; inflation; monetary policy; aggregate demand; real interest rate; monetary policy reaction function; gdp deflator; central bank; money supply; monetary economics; coefficient on inflation; monetary transmission; monetary policy framework; inflation rate; inflation targeting; money growth; monetary aggregates; monetary policy rules; money market; nominal interest rate; monetary policy rule; monetary base; money stock; monetary authority; rate of inflation; financial stability; real wages; price level; foreign exchange; price inflation; monetary targeting; money demand; low inflation; inflationary pressures; monetary fund; price stability; measure of inflation; monetary transmission mechanism; demand for money; open market operations; real interest rates; inflation dynamics; money market interest rates; rise in inflation; reserve requirements; inflation process; real variables; relative prices; monetary targets; inflation forecasts; monetary policy decisions; high inflation; lower inflation; domestic monetary policy; moderate inflation; average rate of inflation; monetary statistics; average inflation; inflationary expectations; inflation target; real exchange rates; macroeconomic stability; value of money; intermediate monetary target; inflation targeting framework; average inflation rate; monetary model; monetary stability; neutrality of money; monetary target; monetary policy frameworks; transmission of monetary policy; government securities; monetary management;

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    1. Inoue, Takeshi & Hamori, Shigeyuki, 2009. "An Empirical Analysis of the Monetary Policy Reaction Function in India," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 200, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Raghbendra Jha, 2005. "Inflation Targeting in India: Issues and Prospects," ASARC Working Papers, The Australian National University, Australia South Asia Research Centre 2005-04, The Australian National University, Australia South Asia Research Centre.
    3. Juan Paez-Farrell, 2009. "Monetary policy rules in theory and in practice: evidence from the UK and the US," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(16), pages 2037-2046.
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    Cited by:
    1. Samarina, Anna, 2012. "Monetary targeting and financial system characteristics: An empirical analysis," Research Report 12011-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).


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