India’s Inflation Process Before and After Flexible Inflation Targeting

India’s Inflation Process Before and After Flexible Inflation Targeting
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Volume/Issue: Volume 2020 Issue 251
Publication date: November 2020
ISBN: 9781513561233
$18.00
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Topics covered in this book

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Finance , Inflation , Economics- Macroeconomics , Money and Monetary Policy , India , WP , inflation expectation , headline inflation processes , food price inflation , core-inflation process , core-inflation determinant , headline inflation forecast , Inflation targeting , Inflation , Food prices , Emerging and frontier financial markets , Import prices , Global

Summary

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.