Why persistent high inflation impedes growth? An empirical assessment of threshold level of inflation for India

Pattanaik, Sitikantha; Nadhanael, G.V.

doi:10.1080/17520843.2012.735248

Cited by 18 publications

(13 citation statements)

References 8 publications

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“…Empirical estimations of the tolerable or threshold inflation led to the establishment of inflation in the range of 5-7 percent (but tending to 5-6 percent) as the objective of monetary policy (Rangarajan, 1997). These estimates are corroborated by recent studies (Mohanty et al, 2011;Pattanaik and Nadhanael, 2011) Statistical evidence of reasonable stability in the demand for money yielded the income elasticity of money demand of 1.77 as a key operating parameter, with the coefficient on inflation at unity (Rangarajan, 1994 (Rangarajan and Singh, 1984); so the money supply rule in its reduced from consisted of determining the growth of reserve money adjusted for reserve requirements as the monetary authority could determine or at least influence the monetary base even in the presence of fiscal dominance and administered interest rates (Rangarajan, 1985). Ending automatic monetization of fiscal deficits was addressed in the context of central bank autonomy (Rangarajan, 1993) 12 , and over the period 1994-97 it was phased out.…”

Section: India's Monetary Policy Frameworksupporting

confidence: 89%

Alternative Monetary Policy Rules for India

Kapur

Patra²

2012

IMF Working Papers

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This paper empirically evaluates the operational performance of the McCallum rule, the Taylor rule and hybrid rules in India over the period 1996-2011 using quarterly data, with a view to analytically informing the conduct of monetary policy. The results show that forward-looking formulations of both rules and their hybrid version-setting a nominal output growth objective for monetary policy with an interest rate instrument-outperform contemporaneous and backward-looking specifications, especially when targeting core components of GDP and inflation, and combine the best parts of efficiency and discretion.

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Section: India's Monetary Policy Frameworksupporting

confidence: 89%

Alternative Monetary Policy Rules for India

Kapur

Patra²

2012

IMF Working Papers

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“…It has recently been argued the Indian AS curve may be backward bending because distortions from inflation reduce effort. RBI (2011 Box 11.4, pp.32) and Pattanaik and Nadhanael (2013) estimate the inflation threshold where such negative effects kick in to be about 5 per cent. But in the theoretical arguments for such a curve, effort decreases with output only after unemployment falls below some critical threshold ( Figure 3 shows the output corresponding to the minimum unemployment rate or MUR).…”

Section: Identifying the As From Indian Growth And Inflation Outcomesmentioning

confidence: 99%

Separating shocks from cyclicality in Indian aggregate supply

Goyal

Tripathi

2015

Journal of Asian Economics

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Simultaneity issues as well as incorrect measurement of shocks and of the cyclical variable bias estimated slopes of the Indian aggregate supply curve (AS). Our initial Generalized Method of Moments estimation, based on a filtered output gap variable and including supply shocks, also gives an unrealistic downward sloping AS. But we find measures of asymmetries in price changes outperform traditional measures of supply shocks. Estimation using marginal costs as a proxy for the output gap gives a positive coefficient that reduces in size on including our comprehensive supply shock variable, implying the correct AS has a small positive slope, but is subject to multiple shifts. The semi-structural specification, closer to firms' actual decisions, gives estimates of structural parameters such as degree of price stickiness and extent of forward-looking price adjustment. The results more correctly separate shocks from cyclicality, help to interpret India's growth and inflation experience, and have implications for policy.

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“…The sacrifice ratio estimates could also depend upon the prevailing inflation rate. The estimates in this paper assume a linear relationship between inflation and growth, whereas the relationship could be non-linear and subject to threshold effects Pattanaik andNadhanael, 2011).…”

Section: Non-food Manufactured Products Inflationmentioning

confidence: 99%