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Inflation targeting and exchange rate pass-through in India: Lessons from international experience

Author

Listed:
  • Arshid Hussain PEER

    (Jamia Millia Islamia, New Delhi, India)

  • Mirza Allim BAIG

    (Jamia Millia Islamia, New Delhi, India)

Abstract

This paper surveys the existing literature on the relationship between inflation targeting (IT) and exchange rate pass-through (ERPT), with a focus on drawing lessons for future IT countries and estimating ERPT in India. The study finds that the main lessons emerging from the experience of IT in reducing pass-through are (a) monetary policy should focus on future inflation, (b) coordination between monetary and fiscal policy is important, and (c) IT is not a panacea. Furthermore, ERPT varies across countries and depends on the composition of the inflation index. The paper also presents a case study of Indian using Vector autoregression model. The study finds decline in ERPT during the IT period.

Suggested Citation

  • Arshid Hussain PEER & Mirza Allim BAIG, 2023. "Inflation targeting and exchange rate pass-through in India: Lessons from international experience," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(634), S), pages 239-254, Spring.
    • Handle: RePEc:agr:journl:v:1(634):y:2023:i:1(634):p:239-254
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    References listed on IDEAS

    as
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