Posted

August 01, 2010 12:00:00 AM

Date

2010-08-01

Author

Michael Patra and Muneesh Kapur

Affiliation

IMF

Title

A Monetary Policy Model Without Money for India

Summary /
Abstract

A New Keynesian model estimated for India yields valuable insights. Aggregate demand reacts to interest rate changes with a lag of at least three quarters, with inflation taking seven quarters to respond. Inflation is inertial and persistent when it sets in, irrespective of the source. Exchange rate pass-through to domestic inflation is low. Inflation turns out to be the dominant focus of monetary policy, accompanied by a strong commitment to the stabilization of output. Recent policy actions have raised the effective policy rate, but the estimated neutral policy rate suggests some further tightening to normalize the policy stance.

Source: IMF Working Paper No. 10/183

URL

http://www.imf.org/external/pubs/cat/longres.cfm?sk=24128.0

Remarks

There is a web link below where you can find a working paper authored by two economists in the Office of the ED for India, authorized by Arvind Virmani. Very informative and nicely written.

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