India’s Inflation Process Before and After Flexible Inflation Targeting
IMF Working Papers, November 13, 2020
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- India’s Inflation Process Before and After Flexible Inflation Targeting
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Bibliographic details
- Authors: Patrick Blagrave, Weicheng Lian
- Published: November 13, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513561233.001
Overview
- Title: India’s Inflation Process Before and After Flexible Inflation Targeting
- Authors: Patrick Blagrave, Weicheng Lian
- Date: November 13, 2020
- Abstract summary:
- The study examines the inflation process in India, comparing periods before and after adoption of flexible inflation-forecast targeting (FIT).
- Multiple approaches are used to assess inflation dynamics and expectations.
- Results point to a significant role for domestic factors and evidence that expectations have become more anchored since 2015.
- The observed anchoring could be attributable to FIT adoption, or to persistently low food prices dominating the post-FIT-adoption period.
- Policy implications are explored using a semi-structural model calibrated to the Indian economy.
Methodology
- Approaches used:
- Standard Phillips curve estimation for headline and core inflation.
- Examination of the sensitivity of medium-term inflation expectations to inflation surprises.
- Analysis of the properties of convergence between headline and core inflation.
- Simulation and policy investigation via a semi-structural model calibrated to the Indian economy.
Key findings and statistics
- Evidence and interpretation:
- Domestic factors play an important role in driving the inflation process in India.
- There is evidence that expectations have become more anchored since 2015.
- The increased anchoring of expectations could reflect either:
- Adoption of flexible inflation-forecast targeting (FIT), or
- Persistently low food prices that dominate the post-FIT-adoption period.
- Publication metadata and numeric details:
- Pages: 26
- Volume: 2020
- Issue: 251
- Series: Working Paper No. 2020/251
- DOI: https://doi.org/10.5089/9781513561233.001
- Stock No: WPIEA2020251
- ISBN: 9781513561233
- ISSN: 1018-5941
Subjects and keywords
- Subject: Emerging and frontier financial markets, Financial markets, Food prices, Import prices, Inflation, Inflation targeting, Monetary policy, Prices
- Keywords: core-inflation determinant, core-inflation process, Emerging and frontier financial markets, food price inflation, Food prices, Global, headline inflation forecast, headline inflation processes, Import prices, India, Inflation, inflation expectation, Inflation targeting, WP
Policy implications
- The structural changes documented (greater role of domestic factors; more-anchored expectations since 2015) are assessed for their implications for monetary policy.
- The semi-structural model calibrated to the Indian economy is used to investigate policy implications arising from these structural changes.
IMF Working Paper — India’s Inflation Process Before and After Flexible Inflation Targeting, Patrick Blagrave and Weicheng Lian, November 13, 2020.
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