India’s Inflation Process Before and After Flexible Inflation Targeting
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Summary:
We study the inflation process in India, focusing on the periods before and after the adoption of flexible inflation-forecast targeting (FIT) in India. Our analysis uses several approaches including standard Phillips curve estimation for headline and core inflation, an examination of the sensitivity of medium-term inflation expectations to inflation surprises, and the properties of convergence between headline and core inflation. Results indicate an important role for domestic factors in driving the inflation process, and there is evidence that expectations have become more anchored since 2015. This result could be attributable to FIT adoption, or to persistently low food prices which dominate the post-FIT-adoption period. The policy implications of these structural changes in the inflation process are investigated using a semi-structural model calibrated to the Indian economy.
Series:
Working Paper No. 2020/251
Subject:
Emerging and frontier financial markets Financial markets Food prices Import prices Inflation Inflation targeting Monetary policy Prices
Frequency:
regular
English
Publication Date:
November 13, 2020
ISBN/ISSN:
9781513561233/1018-5941
Stock No:
WPIEA2020251
Pages:
26
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