What lowered inflation in India: monetary policy or commodity prices?
Pulapre Balakrishnan1,2, M Parameswaran3
1Ashoka University, Sonipat, Haryana 131029 India.
Indian Economic Review
|July 5, 2022
Summary
India
Area of Science:
- Economics
- Monetary Policy
- Indian Economy
Background:
- India experienced a period of historically low inflation for six years.
- This trend has been attributed to the Reserve Bank of India's adoption of inflation targeting in 2016.
- A key assertion is that anchored inflation expectations are responsible for this economic phenomenon.
Purpose of the Study:
- To evaluate the claims linking India's lower inflation to anchored expectations.
- To investigate the validity of the Reserve Bank of India's inflation targeting effectiveness.
- To explore alternative explanations for India's inflation trajectory post-2016.
Main Methods:
- Econometric investigation of inflation data.
- Analysis of the impact of inflation targeting on expectations.
- Application of structuralist economic theories to explain inflation dynamics.
Main Results:
- Econometric analysis found no evidence that anchored expectations lowered inflation in India.
- The study suggests that anchored expectations did not significantly influence the inflation rate.
- An alternative structuralist explanation effectively accounts for India's inflation path after 2016.
Conclusions:
- The claim that anchored inflation expectations caused lower inflation in India is unsubstantiated.
- Structuralist economic factors provide a more accurate explanation for India's inflation trends since 2016.
- The effectiveness of inflation targeting in anchoring expectations in India requires further scrutiny.
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