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Why persistent high inflation impedes growth? An empirical assessment of threshold level of inflation for India

Sitikantha Pattanaik and G. V. Nadhanael

Macroeconomics and Finance in Emerging Market Economies, 2013, vol. 6, issue 2, 204-220

Abstract: In the policy debate on growth--inflation trade-off and the role of monetary policy in managing the trade-off in the short-run, theoretical and empirical research suggests the presence of a country specific threshold level of inflation. Empirical findings of this paper suggest that for India the threshold level of inflation could be around 6%. The inflation target for monetary policy may have to be somewhat lower than the growth maximizing threshold, since any positive inflation could be a risk to inclusive and sustainable growth objective.

Date: 2013
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DOI: 10.1080/17520843.2012.735248

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