India's Inflation Process Before and after Flexible Inflation Targeting

27 Pages Posted: 5 Jan 2021

See all articles by Patrick Blagrave

Patrick Blagrave

International Monetary Fund (IMF)

Weicheng Lian

International Monetary Fund (IMF)

Date Written: November 2020

Abstract

We study the inflation process in India, focusing on the periods before and after the adoption of flexible inflation-forecast targeting (FIT) in India. Our analysis uses several approaches including standard Phillips curve estimation for headline and core inflation, an examination of the sensitivity of medium-term inflation expectations to inflation surprises, and the properties of convergence between headline and core inflation. Results indicate an important role for domestic factors in driving the inflation process, and there is evidence that expectations have become more anchored since 2015. This result could be attributable to FIT adoption, or to persistently low food prices which dominate the post-FIT-adoption period. The policy implications of these structural changes in the inflation process are investigated using a semi-structural model calibrated to the Indian economy.

JEL Classification: E31, E52, Q11, G10

Suggested Citation

Blagrave, Patrick and Lian, Weicheng, India's Inflation Process Before and after Flexible Inflation Targeting (November 2020). IMF Working Paper No. 20/251, Available at SSRN: https://ssrn.com/abstract=3758085

Patrick Blagrave (Contact Author)

International Monetary Fund (IMF) ( email )

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

Weicheng Lian

International Monetary Fund (IMF) ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
14
Abstract Views
58
PlumX Metrics