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Inflation targeting in India: issues and prospects

Jha, Raghbendra

Description

Inflation targeting (henceforth IT) has emerged as a significant monetary policy framework in both developed and transition economies. It has been in place for a decade or more in a number of countries — with around 20 central banks adopting it as their basic monetary policy framework. Some authors have argued that for transition economies undergoing sustained financial liberalization and integration in world financial markets IT is an attractive monetary policy framework. Consequently there is...[Show more]

dc.contributor.authorJha, Raghbendra
dc.date.accessioned2006-05-04
dc.date.accessioned2006-05-24T22:40:14Z
dc.date.accessioned2011-01-05T08:30:34Z
dc.date.available2006-05-24T22:40:14Z
dc.date.available2011-01-05T08:30:34Z
dc.date.created2005
dc.identifier.issn0269-2171
dc.identifier.urihttp://hdl.handle.net/1885/43255
dc.identifier.urihttp://digitalcollections.anu.edu.au/handle/1885/43255
dc.description.abstractInflation targeting (henceforth IT) has emerged as a significant monetary policy framework in both developed and transition economies. It has been in place for a decade or more in a number of countries — with around 20 central banks adopting it as their basic monetary policy framework. Some authors have argued that for transition economies undergoing sustained financial liberalization and integration in world financial markets IT is an attractive monetary policy framework. Consequently there is some pressure for such economies to adopt IT as a core element in their monetary policy frameworks. The present paper evaluates the case for IT in India. It begins with stating, almost from first principles, the objectives of monetary policy in India. I argue that inflation control cannot be an exclusive concern of monetary policy in a country such as India with a substantial poverty problem. The rationales for IT is then spelt out as are some nuances of the practical implementation of IT. The paper provides some evidence on the effects of IT in developed and transition economies and argues that although IT may have been responsible for maintaining a low inflation regime it has not brought down the inflation rate itself substantially. Further, the volatility of exchange rate and output movements in transition countries adopting IT has been higher than in developed market economies. The paper then discusses India’s experience with using rules-based policy measures (nominal targets) and elaborates on the reasons (as espoused in the extant literature) why India is not ready for IT. It is further shown that even if the Reserve Bank of India wanted to, it could not pursue IT since the short-term interest rate (the principal policy tool used to affect inflation in countries working with IT) does not have significant effects on the rate of inflation. The paper concludes by listing monetary policy options for India at the current time.
dc.format.extent1043580 bytes
dc.format.extent354 bytes
dc.format.mimetypeapplication/pdf
dc.format.mimetypeapplication/octet-stream
dc.language.isoen_AU
dc.publisherRoutledge, Taylor & Francis Group
dc.sourceInternational Review of Applied Economics
dc.subjectinflation rate
dc.subjectinflation targeting
dc.subjectmonetary policy framework
dc.titleInflation targeting in India: issues and prospects
dc.typeWorking/Technical Paper
local.description.refereedno
local.identifier.citationvolume22
local.identifier.citationyear2005
local.identifier.eprintid3435
local.rights.ispublishedno
local.identifier.absfor140212 - Macroeconomics (incl. Monetary and Fiscal Theory)
local.identifier.ariespublicationu4002919xPUB147
local.type.statusPublished Version
local.contributor.affiliationANU
local.contributor.affiliationASARC, RSPAS
local.citationno.4 2005
local.bibliographicCitation.issue2
local.bibliographicCitation.startpage259
local.bibliographicCitation.lastpage270
local.identifier.doi10.1080/02692170701880783
dc.date.updated2015-12-08T10:40:59Z
local.identifier.scopusID2-s2.0-41249083909
CollectionsANU Research Publications

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