IDEAS home Printed from
   My bibliography  Save this paper

An Empirical Analysis of the Monetary Policy Reaction Function in India


  • Inoue, Takeshi
  • Hamori, Shigeyuki


This paper empirically analyzes India’s monetary policy reaction function by applying the Taylor(1993) rule and its open-economy version which employs dynamic OLS. The analysis usesmonthly data from the period of April 1998 to December 2007. When the simple Taylor rule wasestimated for India, the output gap coefficient was statistically significant, and its sign conditionwas found to be consistent with theoretical rationale; however, the same was not true of theinflation coefficient. When the Taylor rule with exchange rate was estimated, the coefficients ofoutput gap and exchange rate had statistical significance with the expected signs, whereas theresults of inflation remained the same as before. Therefore, the inflation rate has not played a rolein the conduct of India’s monetary policy, and it is inappropriate for India to adopt aninflation-target type policy framework.

Suggested Citation

  • Inoue, Takeshi & Hamori, Shigeyuki, 2009. "An Empirical Analysis of the Monetary Policy Reaction Function in India," IDE Discussion Papers 200, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  • Handle: RePEc:jet:dpaper:dpaper200

    Download full text from publisher

    File URL:
    File Function: First version, 2009
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Kapur, Muneesh & Behera, Harendra, 2012. "Monetary Transmission Mechanism in India: A Quarterly Model," MPRA Paper 70631, University Library of Munich, Germany.
    2. Muneesh Kapur & Michael Debabrata Patra, 2010. "A Monetary Policy Model Without Money for India," IMF Working Papers 10/183, International Monetary Fund.

    More about this item


    DOLS; India; Monetary policy; Reaction function; Taylor rule;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jet:dpaper:dpaper200. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minami Tosa). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.