Inflation Expectations and Monetary Policy in India: An Empirical Exploration

Author/Editor:

Michael Debabrata Patra ; Partha Ray

Publication Date:

April 1, 2010

Electronic Access:

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Summary:

This paper pursues a computationally intensive approach to generate future inflation, followed by an exploration of the determinants of inflation expectations by estimating a new Keynesian type Phillips curve that takes into account country-specific characteristics, the stance of monetary and fiscal policies, marginal costs and exogenous supply shocks. The empirical results indicate that high and climbing inflation could easily seep into people’s anticipation of future inflation and linger. There is a reputational bonus for monetary policy to act against inflation now rather than going for cold turkey when societal compulsions reach a critical mass.

Series:

Working Paper No. 2010/084

Subject:

Consumer price indexes Financial services Food prices Inflation Prices Real interest rates Wholesale price indexes

English

Publication Date:

April 1, 2010

ISBN/ISSN:

9781451982640/1018-5941

Stock No:

WPIEA2010084

Pages:

26

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