A Historical perspective on India's inflation persistence: A Quantile analysis

Yadavindu Ajit () and Taniya Ghosh
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Yadavindu Ajit: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: This study investigates historical inflation persistence in India under three distinct regimes: monetary targeting, multiple indicator, and inflation targeting (IT). Previous stud- ies for India relied heavily on mean-based estimation techniques, which are biased when inflation has a skewed distribution and do not account for the tail behavior of inflation. As a result, we use a quantile-based estimation approach to test for persistence in in- flation, gaining insights into the stationary properties of various parts of the distribution rather than just the mean. Our regime-specific results point to asymmetric inflation behavior with varying persistence depending on the inflation-affecting shock. We observe high inflation persistence during the multiple indicator regime, which declines with the implementation of IT, particularly in the Pre-COVID sample. Our findings show that imple- menting IT has been beneficial in reducing inflation persistence in developing countries such as India. However, the IT regime was not very effective during COVID-19 in reducing inflation persistence. Therefore, given the intransient nature of inflation in emerging economies, central banks should exercise more caution and patience.

Keywords: Inflation persistence; Monetary regime; Quantile regression (search for similar items in EconPapers)
JEL-codes: C21 E31 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2024-07
New Economics Papers: this item is included in nep-cba, nep-his and nep-mon
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