Reserve Bank of India’s Policy Dilemmas: Reconciling Policy Goals in Times of Turbulence

Bruno Carrasco () and Hiranya Mukhopadhyay ()
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Bruno Carrasco: Asian Development Bank
Hiranya Mukhopadhyay: Asian Development Bank

No 393, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper reviews some of the more critical policy dilemmas facing the Reserve Bank of India (RBI) in its pursuit of inflation stabilization and balanced growth objectives. The challenge in meeting these objectives further increased in the mid-2000s with the advent of large capital flows into the country and with RBI’s role in preserving financial stability. The paper argues, drawing on several empirical results including Taylor rule estimation and nonparametric regression, that there is no simple policy solution to apply in different states of the market and reviews policy decisions undertaken by RBI against the backdrop of a disequilibrium framework where credit markets may be demand or supply constrained. Superimposing two capital flow regimes into this framework leads to identification of episodes where a hawkish (anti-inflationary) stance can give way to a dovish(pro-growth) stance.

Keywords: India; monetary policy dilemmas; central bank; RBI policies; price stability; financial stability; Taylor rule; credit market disequilibrium (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014-03-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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