Inflation-Forecast Targeting for India: An Outline of the Analytical Framework

Jaromir Benes, Kevin Clinton, Asish George, Joice John, Ondrej Kamenik, Douglas Laxton, Pratik Mitra, G.V. Nadhanael, Hou Wang and Fan Zhang

No 2017/032, IMF Working Papers from International Monetary Fund

Abstract: India formally adopted flexible inflation targeting (FIT) in June 2016 to place price stability, defined in terms of a target CPI inflation, as the primary objective of monetary policy. In this context, the paper draws on Indian macroeconomic developments since 2000 and the experience of other countries that adopted FIT to bring out insights on how credible policy with an emphasis on a strong nominal anchor can reduce the impact of supply shocks and improve macroeconomic stability. For illustrating the key issues given the unique structural characteristics of India and the policy options under an FIT framework, the paper describes an analytical framework using the core quarterly projection model (QPM). Simulations of the QPM are carried out to illustrate the monetary policy responses under different types of uncertainty and to bring out the importance of gaining credibility for improving monetary policy efficacy.

Keywords: WP; monetary policy; interest rate; central bank; exchange rate; inflation targeting; Reserve Bank of India; inflation episodes in India; forecasting models; monetary policy models; model calibration; monetary policy rules; monetary policy simulations; inflation expectation; output-inflation trade-off; transmission mechanism; inflation process; asset price inflation; inflation outcome; food inflation; inflation spiral; inflation condition; monetary policy credibility; inflation glide path; a number of monetary policy instrument; Inflation; Central bank policy rate; Output gap; Supply shocks; Global (search for similar items in EconPapers)
Pages: 37
Date: 2017-02-13
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=44658 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2017/032

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().