Inflation-Forecast Targeting for India: An Outline of the Analytical Framework
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Summary:
India formally adopted flexible inflation targeting (FIT) in June 2016 to place price stability, defined in terms of a target CPI inflation, as the primary objective of monetary policy. In this context, the paper draws on Indian macroeconomic developments since 2000 and the experience of other countries that adopted FIT to bring out insights on how credible policy with an emphasis on a strong nominal anchor can reduce the impact of supply shocks and improve macroeconomic stability. For illustrating the key issues given the unique structural characteristics of India and the policy options under an FIT framework, the paper describes an analytical framework using the core quarterly projection model (QPM). Simulations of the QPM are carried out to illustrate the monetary policy responses under different types of uncertainty and to bring out the importance of gaining credibility for improving monetary policy efficacy.
Series:
Working Paper No. 2017/032
Subject:
Central bank policy rate Economic theory Financial services Inflation Inflation targeting Monetary policy Output gap Prices Production Supply shocks
English
Publication Date:
February 13, 2017
ISBN/ISSN:
9781475578690/1018-5941
Stock No:
WPIEA2017032
Pages:
37
Please address any questions about this title to publications@imf.org