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Inflation-Growth Relationship: New Evidence for India

Author

Listed:
  • Barendra Kumar Bhoi

    (Utkal University
    RBI)

  • Gulapsha Tabasum

    (Utkal University)

Abstract

This paper revisits the threshold level of inflation for India. The empirical analysis follows spline regression for the period 1996–97Q1 to 2019–20Q4. The results suggest the existence of a statistically significant threshold level of inflation at 5 to 5.5% in terms of both CPI and WPI. Below this level, the impact of inflation on growth is generally positive whereas it is negative above this level, and therefore injurious to growth. Hence, policymakers in India may consider reducing the tolerable band from 4 ± 2% to 4 ± 1.5% under the flexible inflation targeting regime with a vision to further compress it to 4 ± 1% in due course.

Suggested Citation

  • Barendra Kumar Bhoi & Gulapsha Tabasum, 2024. "Inflation-Growth Relationship: New Evidence for India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(1), pages 223-239, March.
    • Handle: RePEc:spr:jqecon:v:22:y:2024:i:1:d:10.1007_s40953-024-00388-9
    DOI: 10.1007/s40953-024-00388-9
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    More about this item

    Keywords

    High and sustainable growth; Low inflation; Monetary policy; Threshold inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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