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Pre-Conditions For Inflation Targeting In An Emerging Economy - The Case Of India

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  • Ankita Mishra
  • Vinod Mishra

Abstract

This article looks at the preconditions that an emerging economy needs to fulfill, before it can adopt inflation targeting as a monetary policy regime. The study is conducted using the Indian economy as a case study. We conduct an in-depth sector-wise analysis of the Indian economy to evaluate the independence of India's monetary policy from fiscal, external, structural and financial perspectives. Dominance from any of these sectors may divert monetary policy from the objective of maintaining price stability in the economy. Our analysis suggests that among the four dominance issues, the issue of 'structural dominance??? is the most acute for India. Supply shocks, hitting the economy due to structural bottlenecks, pose a major threat to the independent conduct of monetary policy. This study concludes that inflation band targeting with a wide target range would be a feasible monetary policy option for India.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Development Research Unit Working Paper Series with number 08-09.

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Length: 32 pages
Date of creation: 01 May 2009
Date of revision:
Handle: RePEc:mos:druwps:2009-08

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Related research

Keywords: India; Inflation Targeting; Monetary policy; Fiscal Dominance; VAR; GFVD;

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Cited by:
  1. Petreski, Marjan, 2013. "Inflation targeting at the crossroads: Evidence from post-communist economies during the crisis," MPRA Paper, University Library of Munich, Germany 47018, University Library of Munich, Germany.
  2. Mishra, Ankita & Mishra, Vinod, 2012. "Inflation targeting in India: A comparison with the multiple indicator approach," Journal of Asian Economics, Elsevier, Elsevier, vol. 23(1), pages 86-98.
  3. Mishra, Ankita & Mishra, Vinod, 2012. "Evaluating inflation targeting as a monetary policy objective for India," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1053-1063.
  4. Roseline Nyakerario Misati & Esman Morekwa Nyamongo & Lucas Kamau Njoroge & Sheila Kaminchia, 2012. "Feasibility of inflation targeting in an emerging market: evidence from Kenya," Journal of Financial Economic Policy, Emerald Group Publishing, Emerald Group Publishing, vol. 4(2), pages 146-159, June.

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