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

Author

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  • Singh, Kanhaiya
  • Kalirajan, Kaliappa P.

Abstract

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.

Suggested Citation

  • Singh, Kanhaiya & Kalirajan, Kaliappa P., 2006. "Monetary Policy in India: Objectives, Reaction Function and Policy Effectiveness," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 0(Number 2), pages 1-19.
  • Handle: RePEc:ags:reapec:50149
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    File URL: http://ageconsearch.umn.edu/record/50149/files/4-Kanhaiya%20singh.pdf
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    References listed on IDEAS

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    1. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
    2. Chand, Sheetal K. & Singh, Kanhaiya, 2006. "How Applicable Is the Inflation-Targeting Framework for India?," India Policy Forum, National Council of Applied Economic Research, vol. 2(1), pages 123-181.
    3. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    4. 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.
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    Cited by:

    1. Mishra, Ankita & Mishra, Vinod, 2012. "Inflation targeting in India: A comparison with the multiple indicator approach," Journal of Asian Economics, Elsevier, vol. 23(1), pages 86-98.
    2. Sushanta Mallick & Ricardo Sousa, 2013. "Commodity Prices, Inflationary Pressures, and Monetary Policy: Evidence from BRICS Economies," Open Economies Review, Springer, vol. 24(4), pages 677-694, September.
    3. Fredj Jawadi & Sushanta K. Mallick & Ricardo M. Sousa, 2011. "Monetary Policy Rules in the BRICS: How Important is Nonlinearity?," NIPE Working Papers 18/2011, NIPE - Universidade do Minho.
    4. Kumawat, Lokendra & Bhanumurthy, N. R., 2016. "Regime Shifts in India's Monetary Policy Response Function," Working Papers 16/177, National Institute of Public Finance and Policy.
    5. Lokendra Kumawat & N R Bhanumurthy, 2016. "Regime Shifts in India’s Monetary Policy Response Function," Working Papers id:11400, eSocialSciences.
    6. Christina Christou & Ruthira Naraidoo & Rangan Gupta & Won Joong Kim, 2017. "Monetary Policy Reaction Functions of the TICKs: A Quantile Regression Approach," Working Papers 201738, University of Pretoria, Department of Economics.

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    Keywords

    Financial Economics;

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