Alternative Monetary Policy Rules for India

Author/Editor: Muneesh Kapur ; Michael Debabrata Patra
Publication Date: May 01, 2012
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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 empirically evaluates the operational performance of the McCallum rule, the Taylor rule and hybrid rules in India over the period 1996-2011 using quarterly data, with a view to analytically informing the conduct of monetary policy. The results show that forward-looking formulations of both rules and their hybrid version - setting a nominal output growth objective for monetary policy with an interest rate instrument - outperform contemporaneous and backward-looking specifications, especially when targeting core components of GDP and inflation, and combine the best parts of efficiency and discretion.
Series: Working Paper No. 12/118
Subject(s): Monetary authorities | Monetary operations

Author's Keyword(s): India | McCallum Rule | Monetary Policy | Monetary Policy Reaction Function | Neutral Interest Rate | Taylor Rule
Publication Date: May 01, 2012
ISBN/ISSN: 9781475503470/1018-5941 Format: Paper
Stock No: WPIEA2012118 Pages: 44
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