Examining the Trade-Off Between Price and Financial Stability in India
Ila Patnaik (),
Shalini Mittal and
Radhika Pandey ()
Working Papers from eSocialSciences
In recent years, many emerging economies including India have adopted inflation targeting framework. Post the global financial crisis, there is a growing debate on whether monetary policy should target financial stability. Using India as a case study, it presents an empirical approach to assess whether monetary policy can target financial stability. This is done by examining the trade-off between price and financial stability for India. Using correlation between price and financial cycles, it finds that a trade-off exists between price and financial stability. The findings is robust to a series of robustness checks. The study has implications for the conduct of monetary policy in emerging economies. Presence of a trade-off may constrain the ability of a central bank in emerging economies to target financial stability with monetary policy instrument.
Keywords: eSS; inflation targeting framework; global financial crisis; monetary policy; financial stability; empirical approach; trade-off; price; financial cycles; robustness checks; central bank; monetary policy instrument; India. (search for similar items in EconPapers)
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Working Paper: Examining the trade-off between price and financial stability in India (2019)
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