Estimating a Monetary Policy Rule for India
AbstractWe investigate whether the seemingly discretionary and flexible approach of India’s central bank, the Reserve Bank of India (RBI), can in practice be described by a Taylor-type rule. We estimate an exchange rate-augmented Taylor rule for India over the period 1980Q1 to 2008Q4, allowing for potential structural shifts between the pre- and post-liberalization periods in order to capture the potential impact of macroeconomic and institutional changes on the RBI's monetary policy rule. Overall, we find that the output gap seems to matter more to the RBI than inflation, there is greater sensitivity to Consumer Price (CPI) inflation that Wholesale Price (WPI) inflation, and exchange rate changes do not play an important role in constraining monetary policy. Moreover, the post-1998 conduct of monetary policy seems to have changed in the direction of less inertia.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 21106.
Date of creation: 03 Mar 2010
Date of revision:
Reserve Bank of India; Monetary Policy; Taylor Rule; Indian Economy;
Other versions of this item:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-20 (All new papers)
- NEP-CWA-2010-03-20 (Central & Western Asia)
- NEP-MAC-2010-03-20 (Macroeconomics)
- NEP-MON-2010-03-20 (Monetary Economics)
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