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Monetary policy analysis in an inflation targeting framework in emerging economies: The case of India

Author

Listed:
  • Bhattacharya, Rudrani

    () (National Institute of Public Finance and Policy)

  • Patnaik,Ila

    () (National Institute of Public Finance and Policy)

Abstract

Monetary policy in India has moved towards an increasingly flexible exchange rate regime without any explicit framework for an alternative nominal anchor. The failure of monetary policy to anchor inflationary expectations of agents, coupled with negative supply shocks has kept inflation above the acceptable range of 5-5.5 percent for last five years in India. In this paper we present a model for policy analysis for India that provides insights in the setting of an inflation targeting framework to anchor inflationary expectations. The model offers an understanding of the extent to which various shocks, including the post-global crisis fiscal stimulus, accommodative monetary policy and ensuing decline in global demand, explain growth and inflation in India.

Suggested Citation

  • Bhattacharya, Rudrani & Patnaik,Ila, 2014. "Monetary policy analysis in an inflation targeting framework in emerging economies: The case of India," Working Papers 14/131, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:14/131
    Note: Working Paper 131, 2014
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    File URL: http://www.nipfp.org.in/media/medialibrary/2014/02/WP_2014_131.pdf
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    References listed on IDEAS

    as
    1. Patnaik, Ila, 2007. "The Indian currency regime and its consequences," Working Papers 07/49, National Institute of Public Finance and Policy.
    2. Aleem, Abdul, 2010. "Transmission mechanism of monetary policy in India," Journal of Asian Economics, Elsevier, vol. 21(2), pages 186-197, April.
    3. Patnaik, Ila & Shah, Ajay & Sethy, Anmol & Balasubramaniam, Vimal, 2011. "The exchange rate regime in Asia: From crisis to crisis," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 32-43, January.
    4. Michal Andrle & Andrew Berg & R. Armando Morales & Rafael A Portillo & Jan Vlcek, 2013. "Forecasting and Monetary Policy Analysis in Low-Income Countries; Food and non-Food Inflation in Kenya," IMF Working Papers 13/61, International Monetary Fund.
    5. Zeileis, Achim & Shah, Ajay & Patnaik, Ila, 2010. "Testing, monitoring, and dating structural changes in exchange rate regimes," Computational Statistics & Data Analysis, Elsevier, vol. 54(6), pages 1696-1706, June.
    6. Bhattacharya, Rudrani & Patnaik, Ila & Shah, Ajay, 2011. "Monetary policy transmission in an emerging market setting," Working Papers 11/78, National Institute of Public Finance and Policy.
    7. Ajay Shah & Ila Patnaik & Rudrani Bhattacharya, 2008. "Early Warnings of Inflation in India," Working Papers id:1682, eSocialSciences.
    8. Ila Patnaik & Ajay Shah, 2012. "Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(3), pages 439-464, September.
    9. Kapur, Muneesh & Behera, Harendra, 2012. "Monetary Transmission Mechanism in India: A Quarterly Model," MPRA Paper 70631, University Library of Munich, Germany.
    10. Muneesh Kapur & Michael Debabrata Patra, 2012. "Alternative Monetary Policy Rules for India," IMF Working Papers 12/118, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Charan Singh, 2015. "Inflation Targeting India: Select Issues," Working Papers id:7002, eSocialSciences.
    2. Aadil Nakhoda, 2014. "The Influence of Industry Financial Composition on the Exports from Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 10, pages 21-49.
    3. Charan Singh, 2015. "Inflation Targeting in India: Select Issues," Working Papers id:7131, eSocialSciences.
    4. Sahu, Priyanka, 2018. "The Impact of Shocks on Core Inflation; Evidence from India," MPRA Paper 86588, University Library of Munich, Germany.
    5. Jaroslava Durčáková & Ondřej Šíma, 2015. "BRICS: Interconnection of Exchange Rate, Balance of Payments and Foreign Exchange Reserve - the Example of India," Český finanční a účetní časopis, University of Economics, Prague, vol. 2015(1), pages 6-35.

    More about this item

    Keywords

    Inflation ; Monetary policy ; India ; Emerging economies;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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