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Efficacy of New Monetary Framework and Determining Inflation in India: An Empirical Analysis of Financially Deregulated Regime

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  • Chakraborty, Lekha

    (National Institute of Public Finance and Policy)

  • Varma, Kushagra Om

    (National Institute of Public Finance and Policy)

Abstract

Against the backdrop of the new monetary policy framework, this paper analyses the determinants of inflation in the deregulated financial regime. The paper upfront has been kept free from adherence to any particular school of thought on inflation, particularly fiscal theories of price determination (where inflation targeting is emphasised) and the monetarist axioms. Using the ARDL methodology, the determinants of inflation based on Wholesale Price Index (WPI) and the Consumer Price Index (CPI) have been empirically tested for the financially deregulated period. The results reveal that the supply-side variables are indeed significant and have a considerable effect on inflation. This result has policy implications especially in the context of a shift from discretion to rule-based monetary policy in the context of India.

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  • Chakraborty, Lekha & Varma, Kushagra Om, 2015. "Efficacy of New Monetary Framework and Determining Inflation in India: An Empirical Analysis of Financially Deregulated Regime," Working Papers 15/153, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:15/153
    Note: Working Paper 153, 2015
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    1. Aggarwal, Bhavya & Chakraborty, Lekha, 2015. "Towards 2030 UN Agenda on Sustainable Development Goals: Technical Challenges in Measuring Gender Inequality in Asia Pacific," Working Papers 15/157, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Inflation ; Supply side ; ARDL;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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