PRE-CONDITIONS FOR INFLATION TARGETING IN AN EMERGING ECONOMY - THE CASE OF INDIA

Ankita Mishra and Vinod Mishra

No 08-09, Development Research Unit Working Paper Series from Monash University, Department of Economics

Abstract: This article looks at the preconditions that an emerging economy needs to fulfill, before it can adopt inflation targeting as a monetary policy regime. The study is conducted using the Indian economy as a case study. We conduct an in-depth sector-wise analysis of the Indian economy to evaluate the independence of India's monetary policy from fiscal, external, structural and financial perspectives. Dominance from any of these sectors may divert monetary policy from the objective of maintaining price stability in the economy. Our analysis suggests that among the four dominance issues, the issue of 'structural dominance??? is the most acute for India. Supply shocks, hitting the economy due to structural bottlenecks, pose a major threat to the independent conduct of monetary policy. This study concludes that inflation band targeting with a wide target range would be a feasible monetary policy option for India.

Keywords: India; Inflation Targeting; Monetary policy; Fiscal Dominance; VAR; GFVD (search for similar items in EconPapers)
JEL-codes: E47 E52 E58 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-05-01
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Pre-conditions for Inflation Targeting in an Emerging Economy: The Case of India (2013)
Journal Article: Pre-conditions for Inflation Targeting in an Emerging Economy: The Case of India (2013)
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