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Assessing Central Bank Commitment to Inflation Targeting in Emerging Economies: Evidence From India

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Abstract

We propose a novel framework to gauge the credibility of a central bank’s commitment to inflation targeting. Our framework combines survey data on macroeconomic forecasts with financial market data to estimate how market-perceived responsiveness of the central bank to inflation evolves with the adoption of inflation targeting. This approach is especially suitable for emerging economies, many of which have adopted an inflation targeting framework but lack data on long-run inflation expectations. We apply our framework to study the adoption of inflation targeting in India. We find that the Reserve Bank of India’s commitment to inflation targeting is viewed as credible.

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  • Garga, Vaishali & Lakdawala, Aeimit & Sengupta, Rajeswari, 2024. "Assessing Central Bank Commitment to Inflation Targeting in Emerging Economies: Evidence From India," Working Papers 107, Wake Forest University, Economics Department.
    • Handle: RePEc:ris:wfuewp:0107
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    Keywords

    Macroeconomic forecasts; Financial markets; Credibility; Inflation Targeting; Inflation expectations.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - 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

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