Inflation Expectations and Monetary Policy in India : An Empirical Exploration

Author/Editor:

Michael Debabrata Patra ; Partha Ray

Publication Date:

April 1, 2010

Electronic Access:

Free Full Text (PDF file size is 1185 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper pursues a computationally intensive approach to generate future inflation, followed by an exploration of the determinants of inflation expectations by estimating a new Keynesian type Phillips curve that takes into account country-specific characteristics, the stance of monetary and fiscal policies, marginal costs and exogenous supply shocks. The empirical results indicate that high and climbing inflation could easily seep into people’s anticipation of future inflation and linger. There is a reputational bonus for monetary policy to act against inflation now rather than going for cold turkey when societal compulsions reach a critical mass.

Series:

Working Paper No. 10/84

Subject:

English

Publication Date:

April 1, 2010

ISBN/ISSN:

9781451982640/1018-5941

Stock No:

WPIEA2010084

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

Please address any questions about this title to publications@imf.org