Inflation Targeting in India: An Interim Assessment

Barry Eichengreen, Poonam-000193453 Gupta and Rishabh Choudhary

No 9422, Policy Research Working Paper Series from The World Bank

Abstract: This paper provides an assessment of India’s inflation-targeting regime. It shows that theReserve Bank of India is best characterized as a flexible inflation targeter: contrary to criticism, it does notneglect changes in the output gap when setting policy rates. The paper does not find that the Reserve Bank of Indiabecame more hawkish following the transition to inflation-targeting; to the contrary, adjusting forinflation and the output gap, policy rates became lower, not higher. Some evidence suggests that inflation has becomebetter anchored: increases in actual inflation do less to excite inflation expectations, indicative of improvedanti-inflation credibility. The question is whether the shift to inflation-targeting has enhanced the credibility ofmonetary policy such that the Reserve Bank of India is in a position to take extraordinary action in response to theCovid-19 crisis. The paper argues that the rules and understandings governing inflation-targeting regimes comewith escape clauses allowing central banks to shelve their inflation targets temporarily, under specific circumstancessatisfied by the Covid-19 pandemic. The paper providesevidence that inflation-targeting central banks were able to respond more forcefully to the Covid-19 crisis, consistentwith the idea that inflation expectations were better anchored, providing more policy room for maneuver.

Keywords: Inflation; Macroeconomic Management; Public Sector Economics; Public Finance Decentralization and Poverty Reduction; Financial Sector Policy (search for similar items in EconPapers)
Date: 2020-10-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://documents.worldbank.org/curated/en/48025160 ... terim-Assessment.pdf (application/pdf)

Related works:
Journal Article: Inflation Targeting in India: An Interim Assessment (2021)
Working Paper: Inflation Targeting in India: An Interim Assessment (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:9422

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().