The quest for optimal monetary policy rules in India

Patra, Michael Debabrata; Khundrakpam, Jeevan Kumar; Gangadaran, S

doi:10.1016/j.jpolmod.2017.01.006

Cited by 8 publications

(7 citation statements)

References 26 publications

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“…Moving to the IS curve estimates, the output gap has become more persistent (indicative of sluggishness in the adjustment of aggregate demand to tightening structural rigidities and supply bottlenecks) and, the impact of the real policy rate on output has declined (Patra et al (2017). Salunkhe and Patnaik (2018) focus on the IS curve dynamics for India, and confirm the findings of Patra and Kapur (2012a) on a backward-looking IS model fitting the data better vis-à-vis the hybrid model.…”

Section: Empirical Evidence: Indiasupporting

confidence: 54%

“…In view of the earlier noted estimation challenges from the regime shift towards a CPI-based framework, this section assesses model dynamics using monetary policy reaction functions employed in two recent studies -Benes et al (2016) (dubbed "QPM" rule in the discussion below) and Patra et al (2017) (dubbed "PKG" rule). The reaction function in Benes et al responds both to deviations of headline and core inflation from the policy target, with more aggressive response to core inflation.…”

Section: Model Simulations: Alternative Monetary Rulesmentioning

confidence: 99%

“…The reaction function in Benes et al responds both to deviations of headline and core inflation from the policy target, with more aggressive response to core inflation. Patra et al (2017) endeavour for an "optimal" policy rule in a framework that minimises the central bank's quadratic loss-function framework, i.e., minimises deviations of output and inflation from policy objectives. The optimal rule in PKG puts a substantially lesser weight on interest rate smoothing compared to the literature.…”

Section: Model Simulations: Alternative Monetary Rulesmentioning

confidence: 99%

See 2 more Smart Citations

Macroeconomic Policies and Transmission Dynamics in India

Kapur

2018

SSRN Journal

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Against the backdrop of the move to an inflation targeting monetary policy framework beginning 2014 with consumer price index (CPI) inflation as the nominal anchor, this paper revisits monetary transmission dynamics. Rather than confining to the typical three equation New Keynesian model, this paper assesses transmission in a broader, disaggregated model incorporating external sector, fiscal policy, banking sector and financial market variables to capture the interactions among key macroeconomic policies and macroeconomic aggregates. The empirical analysis confirms the role of monetary policy in containing demand and inflationary pressures. In view of the ongoing structural reforms, deregulation and opening up of the Indian economy, as well as ongoing initiatives in the monetary policy operating framework to improve the efficacy of monetary transmission, the transmission dynamics can be expected to evolve over time.

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Section: Empirical Evidence: Indiasupporting

confidence: 54%

Section: Model Simulations: Alternative Monetary Rulesmentioning

confidence: 99%

Section: Model Simulations: Alternative Monetary Rulesmentioning

confidence: 99%

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Macroeconomic Policies and Transmission Dynamics in India

Kapur

2018

SSRN Journal

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“…Their results suggested that the share of firms setting prices in a forward-looking manner exceeds those with backward-looking firms. The empirical findings of Patra, Khundrakpam, and Gangadaran (2017) suggested that the coefficients on both the lead and lagged inflation term in hybrid NKPC are significant and have increased over the post-crisis period. Also, they found that the hybrid NKPC is significantly backward looking and relatively flat in India.…”

Section: Review Of the Literaturementioning

confidence: 99%

Inflation Dynamics and Monetary Policy in India: A New Keynesian Phillips Curve Perspective

Salunkhe

Patnaik

2019

South Asian Journal of Macroeconomics and Public Finance

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The present study estimates various specifications of the New Keynesian Phillips Curve (NKPC) models for India over 1996Q2 to 2017Q2 using Consumer Price Index (CPI) and Wholesale Price Index (WPI) inflation, separately. The empirical results suggest that the data support all the specifications of the Phillips curve models based on both the CPI and WPI inflations. However, the backward looking and hybrid models provide robust results for both the inflation indices. While the forward-looking behaviour dominates the CPI inflation trajectory, the backward-looking behaviour greatly influences the trajectory of WPI inflation. Also, a small-to-moderate degree of persistence is evident in both the CPI and WPI inflation. The output gap, which mainly represents the demand side pressures, turns up the major force determining both the CPI and WPI inflations. Besides the output gap, real effective exchange rate (reer), international crude oil price inflation, global non-fuel commodity price inflation and rainfall have a modest impact on the CPI and WPI inflations. JEL Classification: E12, E52, C36, C14

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“…The use of the DSGE models has drawn attention in the developed and developing countries over the last decade (Adolfson et al, 2014;Clarida, 2014;Curdia and Finocchiaro, 2013;Patra et al, 2017). Bouda (2015) studies the influence of alternative monetary policy rule that a monetary policy shock is expressed as a New Keynesian Model (NKM) on the Czech Republic.…”

Section: Introductionmentioning

confidence: 99%

Welfare Implications of Alternative Monetary Policy Rules: A New Keynesian DSGE Model for Turkey

Yağcıbaşı

Yıldırım

2017

Review of Economic Perspectives

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Abstract:In recent years, there has been extensive research on the conduct of monetary policy in small open economies that are subject to inflation and output fluctuations. Policymakers should decide whether to implement strict inflation targeting or to respond to the changes in output fluctuations while conducting monetary policy rule. This study aims to examine the response of alternative monetary policy rules to Turkish economy by means of a DSGE model that is subject to demand and technology shocks. The New Keynesian model we used is borrowed from Gali (2015) and calibrated for the Turkish economy. Welfare effects of alternative Taylor rules are evaluated under different specifications of central bank loss function. One of the main findings of this paper is that in the case of a technology shock, strict inflation targeting rules provide the minimum welfare loss under all loss function configurations. On the contrary, the losses are weakened if the monetary authority responds to output fluctuations in the presence of a demand shock. Finally, there exists a trade-off between the volatility of output and inflation in case of a technology shock, while the volatility of both variables moves in the same direction in response to a demand shock.

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The quest for optimal monetary policy rules in India

Cited by 8 publications

References 26 publications

Macroeconomic Policies and Transmission Dynamics in India

Macroeconomic Policies and Transmission Dynamics in India

Inflation Dynamics and Monetary Policy in India: A New Keynesian Phillips Curve Perspective

Welfare Implications of Alternative Monetary Policy Rules: A New Keynesian DSGE Model for Turkey

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