A Monetary Policy Model Without Money for India

Author/Editor: Patra, Michael ; Kapur, Muneesh
Publication Date: August 01, 2010
Electronic Access: Free Full text (PDF file size is 1,838KB).
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: A New Keynesian model estimated for India yields valuable insights. Aggregate demand reacts to interest rate changes with a lag of at least three quarters, with inflation taking seven quarters to respond. Inflation is inertial and persistent when it sets in, irrespective of the source. Exchange rate pass-through to domestic inflation is low. Inflation turns out to be the dominant focus of monetary policy, accompanied by a strong commitment to the stabilization of output. Recent policy actions have raised the effective policy rate, but the estimated neutral policy rate suggests some further tightening to normalize the policy stance.
Series: Working Paper No. 10/183
Subject(s): Economic models | India | Monetary policy | Monetary transmission mechanism | Money

Author's Keyword(s): Exchange Rate Pass-through | India | IS Curve | Monetary Policy | Monetary Transmission | Neutral Interest Rate | New Keynesian Model | Phillips Curve
Publication Date: August 01, 2010
Format: Paper
Stock No: WPIEA2010183 Pages: 62
US$18.00 (Academic Rate:
US$18.00 )
Please address any questions about this title to publications@imf.org