Modeling and Forecasting Inflation in India

Tim Callen and Dongkoo Chang

No 1999/119, IMF Working Papers from International Monetary Fund

Abstract: The Reserve Bank of India (RBI) has moved away from a broad money target toward a “multiple indicators” approach to the conduct of monetary policy. In adopting such a framework, it is necessary to know which of the many potential indicators provide the most reliable and timely information on future developments in the target variable(s). This paper assesses which indicators provide the most useful information about future inflationary trends. It concludes that while the broad money target has been de-emphasized, developments in the monetary aggregates remain an important indicator of future inflation. The exchange rate and import prices are also relevant, particularly for inflation in the manufacturing sector.

Keywords: WP; excess demand; WPI inflation; India; inflation; cointegration; inflation development; price inflation; output gap model; inflation expectation; product inflation; Output gap; Wholesale price indexes; Consumer price indexes; Monetary base; Asia and Pacific (search for similar items in EconPapers)
Pages: 36
Date: 1999-09-01
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Citations: View citations in EconPapers (33)

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