Alex, Dony
(2025)
Inflation targeting and the changing transmission mechanism of monetary policy in India.
Economic Modelling, 151: 107141.
pp. 1-14.
ISSN 0264-9993
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Abstract
We examine shifts in the conduct of monetary policy in India, before and after the adoption of inflation targeting (IT), while also accounting for the impact of COVID-19. Unlike existing studies that pre-date COVID-19, we employ a unified framework using a time-varying BVAR model with data spanning 1998 to 2024. We find that, prior to IT, contractionary monetary policy had a limited impact on inflation with presence of a price puzzle. In contrast, the IT period exhibits improved monetary policy transmission, with policy shocks exerting a stronger influence on inflation with the price puzzle disappearing, reflecting enhanced policy credibility. However, this effect weakens during the COVID-19 years. Interestingly, monetary policy had greater influence on the output gap and exchange rate in the pre-IT period, with diminished effects during IT and COVID-19 period. These findings underscore the effectiveness of inflation targeting in improving the transmission of monetary policy in India, though it shows limitations during COVID-19.
Item Type: | Article |
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Keywords: | Inflation targeting | Monetary transmission mechanism | Price puzzle | Time-varying parameters |
Subjects: | Social Sciences and humanities > Economics, Econometrics and Finance > Econometrics |
JGU School/Centre: | Jindal School of Liberal Arts & Humanities |
Depositing User: | Mr. Luckey Pathan |
Date Deposited: | 27 Jun 2025 14:55 |
Last Modified: | 27 Jun 2025 14:55 |
Official URL: | https://www.sciencedirect.com/science/article/pii/... |
URI: | https://pure.jgu.edu.in/id/eprint/9681 |
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