Phillips Curve Relationship in India: Evidence from State-Level Analysis

Harendra Behera, Garima Wahi and Muneesh Kapur

Abstract: This paper revisits the issue of determinants of inflation in India in a Phillips curve framework and makes two key contributions in relation to existing studies. First, in the context of the Reserve Bank moving towards a flexible inflation targeting framework based on consumer price index (CPI) inflation, this paper attempts to model dynamics of the CPI inflation. Second, this paper explores the Phillips curve relationship using sub-national data in a panel-approach. The estimates in this paper confirm the presence of a conventional Phillips curve specification, both for core inflation and headline inflation. Excess demand conditions have the expected hardening effect on inflation, with the impact being more on core inflation. Exchange rate movements are also found to have a significant impact on inflation. Overall, the paperâ€™s findings provide support for the role of a counter cyclical monetary policy to stabilise inflation and inflation expectations.

Keywords: Consumer Price Inflation; Exchange Rate Pass-through; Monetary Policy; Phillips Curve. (search for similar items in EconPapers)
Date: 2017-08
Note: Institutional Papers
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Citations: View citations in EconPapers (4)

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