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

Author

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  • 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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    References listed on IDEAS

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    1. Ila Patnaik, 2007. "The Indian Currency Regime and its Consequences," Working Papers id:1062, eSocialSciences.
    2. 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.
    3. Muneesh Kapur & Michael Debabrata Patra, 2012. "Alternative Monetary Policy Rules for India," IMF Working Papers 2012/118, International Monetary Fund.
    4. Ding Ding & Rahul Anand & Mr. Shanaka J Peiris, 2011. "Towards Inflation Targeting in Sri Lanka," IMF Working Papers 2011/081, International Monetary Fund.
    5. Aleem, Abdul, 2010. "Transmission mechanism of monetary policy in India," Journal of Asian Economics, Elsevier, vol. 21(2), pages 186-197, April.
    6. 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.
    7. Bhattacharya, Rudrani & Patnaik, Ila & Shah, Ajay, 2008. "Early warnings of inflation in India," Working Papers 08/54, National Institute of Public Finance and Policy.
    8. Mr. Magnus Saxegaard & Rahul Anand & Mr. Shanaka J Peiris, 2010. "An Estimated Model with Macrofinancial Linkages for India," IMF Working Papers 2010/021, International Monetary Fund.
    9. 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.
    10. Kapur, Muneesh & Behera, Harendra, 2012. "Monetary Transmission Mechanism in India: A Quarterly Model," MPRA Paper 70631, University Library of Munich, Germany.
    11. Michal Andrle & Mr. Andrew Berg & Rogelio Morales & Mr. Rafael A Portillo & Mr. Jan Vlcek, 2013. "Forecasting and Monetary Policy Analysis in Low-Income Countries: Food and non-Food Inflation in Kenya," IMF Working Papers 2013/061, International Monetary Fund.
    12. 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.
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    Citations

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    Cited by:

    1. Bhavesh Salunkhe & Anuradha Patnaik, 2018. "The IS Curve and Monetary Policy Transmission in India: A New Keynesian Perspective," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(1), pages 41-66, February.
    2. Charan Singh, 2015. "Inflation Targeting in India: Select Issues," Working Papers id:7131, eSocialSciences.
    3. Sahu, Priyanka, 2018. "The Impact of Shocks on Core Inflation; Evidence from India," MPRA Paper 86588, University Library of Munich, Germany.
    4. Priyanka Sahu, 2021. "A Study on the Dynamic Behaviour of Headline Versus Core Inflation: Evidence from India," Global Business Review, International Management Institute, vol. 22(6), pages 1574-1593, December.
    5. Patnaik, Ila & Pandey, Radhika, 2020. "Moving to Inflation Targeting," Working Papers 20/316, National Institute of Public Finance and Policy.
    6. Charan Singh, 2015. "Inflation Targeting India: Select Issues," Working Papers id:7002, eSocialSciences.
    7. Jaroslava Durčáková & Ondřej Šíma, 2015. "BRICS: Interconnection of Exchange Rate, Balance of Payments and Foreign Exchange Reserve - the Example of India [BRICS: Vzájemné souvislosti měnového kurzu, platební bilance a devizových rezerv - ," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2015(1), pages 6-35.
    8. Bhattacharya, Rudrani, 2024. "How did Transition to the GST Regime Affect Inflation in India?," Working Papers 24/405, National Institute of Public Finance and Policy.
    9. 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.
    10. Bhattacharya, Rudrani, 2023. "Does Monetary Policy in India Anchor Inflation Expectation?," Working Papers 23/395, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Inflation ; Monetary policy ; India ; Emerging economies;
    All these keywords.

    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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