Inflation targeting and monetary policy response in India

Abhay Pratap Raghuvanshi and Wasim Ahmad

Journal of Asian Economics, 2024, vol. 95, issue C

Abstract: India adopted the Flexible Inflation Targeting (FIT) regime in 2016 under the mentorship of the Monetary Policy Committee (MPC). With FIT’s introduction, the effectiveness of monetary policy transmission channels required a re-visit and this paper is a valuable contribution in this direction. Using the multivariate model with an augmented Bayesian set- up, we find that FIT-MPC has strengthened the credit and interest rate channels while their impact on output has weakened. The impact of Operation Twist – a set of unconventional measures pursued during the pandemic is visible. Overall, the findings highlight the overhauling effect of monetary policy transmission in the Indian context.

Keywords: Flexible inflation targeting; transmission channels; impulse response; India (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:95:y:2024:i:c:s1049007824001179

DOI: 10.1016/j.asieco.2024.101822

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