Alternative Monetary Policy Rules for India

Muneesh Kapur and Michael Patra

No 2012/118, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; central bank; policy instrument; reverse repo; India; McCallum Rule; Monetary Policy; Monetary Policy Reaction Function; Neutral Interest Rate; Taylor Rule; policy rule; reaction function; principle result; real rate of interest; WPI inflation; rate of growth; inflation gap; Inflation; Central bank policy rate; Monetary base; Output gap; Personal income; Global (search for similar items in EconPapers)
Pages: 44
Date: 2012-05-01
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Citations: View citations in EconPapers (28)

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