Natural Interest Rate: Assessing the Stance of India’s Monetary Policy under Uncertainty

Harendra Behera, Sitikantha Pattanaik and Rajesh Kavediya ()

Working Papers from eSocialSciences

Abstract: Using a theoretical framework that combines the essence of Ramsay’s growth model and the New-Keynesian macrodynamics, and applying the Kalman filter estimation technique, this paper finds that India’s natural real interest rate in Q4 of 2014-15 lied in a range of 0.6 per cent to 3.1 per cent, even though core estimates point to a narrower range of 1.6 per cent to 1.8 per cent. These estimates indicate that the real interest rate gap was negative in India for a major part of the last about ten years when CPI inflation was persistently high, implying that monetary policy stance of the Reserve Bank was largely accommodative rather than anti-inflationary.

Keywords: Natural Interest Rate; Ramsay’s growth model; New-Keynesian macrodynamics; Kalman; filter estimation technique; India; Reserve Bank; monetary policy; anti-inflationary; CPI; inflation; central bank; money; global crisis; economy; fiscal deficit; global; domestic; international market; transitory (search for similar items in EconPapers)
Date: 2015-10
Note: Institutional Papers
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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