Inflation Targeting for India?: The Implications of Limited Asset Market Participation

Tara Iyer

Working Papers from eSocialSciences

Abstract: This paper considers the implications of an imperfect monetary transmission mechanism for optimal monetary policy choices in an open economy. The asset market channel is restricted in this paper as some agents lack financial capacity and cannot participate in asset markets. Consumer Price Index (CPI) inflation targeting is appropriate upon a cost-push shock when all agents can borrow and save, there exists a case for stabilizing the nominal exchange rate when financial participation is low. The analysis is applied to the Indian context where monetary policy has recently been overhauled.

Keywords: inflation; Targeting; India; Asset market; CPI; economy; exchange rate; macro economics; open market; monetary policy (search for similar items in EconPapers)
Date: 2015-08
Note: Institutional Papers
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Citations: View citations in EconPapers (3)

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