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Examining the Trade-Off Between Price and Financial Stability in India

Ila Patnaik (), Shalini Mittal and Radhika Pandey ()

Working Papers from eSocialSciences

Abstract: 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)
Date: 2019-01
Note: Institutional Papers
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