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. We find that while 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 and a new CPI ininflation targeting regime is being implemented.

Keywords: Open Economy Macroeconomics, General Aggregative Models: Keynes; Keynesian; Post-Keynesian, Optimal Monetary Policy, Limited Asset Market Participation (search for similar items in EconPapers)
Date: 2015-07
Note: Institutional Papers
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Citations: View citations in EconPapers (4)

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Working Paper: Inflation Targeting for India The Implications of Limited Asset Market Participation (2015)
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