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Monetary Policy in India: Objectives, Reaction Function and Policy Effectiveness

  • Singh, Kanhaiya
  • Kalirajan, Kaliappa P.

In the first part of this paper, the policy reaction functions of the Reserve Bank of India (RBI) have been modeled to see how policy stance decisions respond to the changes in the goal variables. In the second part, the transmission effects of RBI’s policy stances on the goal variables have been analyzed using the Granger causality test, and analysis of simple estimated models of relevant variables. It may be suggested from the results that the RBI should not be working simultaneously with instruments of quantity and price control and should shelve the cash reserve ratio (CRR) and concentrate more on price variables for conducting monetary policy.

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Article provided by Review of Applied Economics in its journal Review of Applied Economics.

Volume (Year): 2 (2006)
Issue (Month): 2 ()

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Handle: RePEc:ags:reapec:50149
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  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
  2. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1997. "Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables," Cambridge Working Papers in Economics 9706, Faculty of Economics, University of Cambridge.
  3. Singh, Kanhaiya & Kalirajan, Kaliappa, 2003. "The inflation-growth nexus in India: an empirical analysis," Journal of Policy Modeling, Elsevier, vol. 25(4), pages 377-396, June.
  4. Sheetal K. Chand & Kanhaiya Singh, 2005. "How Applicable Is the Inflation-Targeting Framework for India?," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 2(1), pages 123-181.
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