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The Impact of Shocks on Core Inflation; Evidence from India

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  • Sahu, Priyanka

Abstract

This paper attempts to investigate the impact of demand and supply shocks on core inflation in India. Firstly, it calculates core inflation through asymmetric trim mean approach and secondly autoregressive distributed model is used to explain the dynamic effects of shocks on core inflation. Empirical findings based on ARDL bound test confirms the existence of long run relationship between core inflation with other macroeconomic variables and CUSUM and CUSUMSQ test show stability of coefficients in the model. Overall, the response of core inflation to demand shock is high in case of real variables as compared to monetary variables and its response to skewness-based supply shock is high as compared to food and fuel inflation.

Suggested Citation

  • Sahu, Priyanka, 2018. "The Impact of Shocks on Core Inflation; Evidence from India," MPRA Paper 86588, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86588
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    File URL: https://mpra.ub.uni-muenchen.de/86588/1/MPRA_paper_86588.pdf
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    Cited by:

    1. Priyanka Sahu, 2021. "A Study on the Dynamic Behaviour of Headline Versus Core Inflation: Evidence from India," Global Business Review, International Management Institute, vol. 22(6), pages 1574-1593, December.

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    More about this item

    Keywords

    Headline Inflation; Core Inflation; Demand Shocks; Supply Shocks; Asymmetric trimmed Mean; Autoregressive Model; Bound Test.;
    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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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