A Review of Monetary Policy in India Inflation Targeting and Beyond

Abstract

Since the 1990 s, the conduct of Monetary Policy in most countries had been guided by the New Keynesian Phillips Curve (NKPC) Framework that broadly assumes inflation as a result of overheated economy, that needs to be corrected by active interest rate management of aggregate demand supported by credible central bank that strives to anchor inflation expectations. Despite the strongly heuristic nature of the theoretical construct, most of the research has stayed within the said paradigm and supply side issues have been treated as temporary shocks rather than as structural rigidities. A heterodox perspective, has been missing. This Study attempted to address the efficacy of the monetary policy in India by exploring the (i) Inflation dynamics, (ii) Transmission efficiency and (iii) Policy relevance of inflation expectations. As an adjunct to the supply side examination of the inflation dynamics in India, it further explores the potential implications for the policy from the threat of climate change newline