Does Inflation Targeting Help Information Transmission?

51 Pages Posted: 24 Nov 2020

See all articles by Satadru Das

Satadru Das

RESERVE BANK OF INDIA; Louisiana State University, Baton Rouge - Department of Economics

Jay Surti

International Monetary Fund (IMF)

Shekhar Tomar

Indian School of Business

Date Written: September 29, 2020

Abstract

This paper studies the informational impact of inflation targeting on financial market volatility in an emerging market context by using a novel monetary policy regime-switching approach. We find that the changeover to inflation targeting in India did not result in a greater impact of monetary policy surprises on bond and equity market volatility. We rule out financial frictions as a factor driving our results. Our evidence-based textual analysis of central bank policy announcements shows an increased focus on inflation, but not on growth, possibly explaining why the equity market impact of monetary policy announcements remained weak even after inflation targeting.

Keywords: inflation targeting, central bank communication, monetary policy

JEL Classification: E44, E58

Suggested Citation

Das, Satadru and Surti, Jay and Tomar, Shekhar, Does Inflation Targeting Help Information Transmission? (September 29, 2020). Available at SSRN: https://ssrn.com/abstract=3701541 or http://dx.doi.org/10.2139/ssrn.3701541

Satadru Das

RESERVE BANK OF INDIA ( email )

Shahid Bhagat Singh Road
Mumbai
Mumbai, Maharashtra 400051
India

Louisiana State University, Baton Rouge - Department of Economics ( email )

Department of economics
Baton Rouge, LA 70803-6308
United States

Jay Surti

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Shekhar Tomar (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

HOME PAGE: http://shekhartomar.com

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