Are inflation expectations anchored in India? A peek through the credibility lens

Anuradha Patnaik ()
Additional contact information
Anuradha Patnaik: University of Mumbai

International Economics and Economic Policy, 2025, vol. 22, issue 1, No 13, 23 pages

Abstract: Abstract We provide a measure of the credibility of the monetary policy of India after implementation of the Flexible Inflation Targeting (FIT) framework and attempt to deduce, if inflation expectations are anchored in India. The methodology involves (a) construction of a credibility index for the period 2012 to 2022 using annual data and (b) estimation of a time-varying implicit credibility index using a time-varying regression model, for the period 2014 to 2022 using quarterly data. It is evident from both the measures that there has been a gradual rise in the credibility after implementation of the FIT framework and that credibility is sensitive to unexpected external shocks. The empirical results derived from the implicit credibility index enable us to conclude that the inflation expectations of households and professional forecasters have been anchored after implementation of FIT in India. The robustness of the empirical results is evident as similar conclusions could be drawn when ordinary least square (OLS) estimation was used instead of the time-varying regression model. Likewise, better anchoring of the short-term inflation expectations of the households and professional forecasters is evident as compared to the medium-term expectations.

Keywords: Credibility; Inflation targeting; Inflation Expectations; Monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10368-024-00642-8 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:iecepo:v:22:y:2025:i:1:d:10.1007_s10368-024-00642-8

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10368/PS2

DOI: 10.1007/s10368-024-00642-8

Access Statistics for this article

International Economics and Economic Policy is currently edited by Paul J.J. Welfens, Holger C. Wolf, Christian Pierdzioch and Christian Richter

More articles in International Economics and Economic Policy from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().