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What lowered inflation in India: Monetary policy or commodity prices?

  • Economics Discussion Papers
  • October 2, 2021
  • Pulapre Balakrishnan,
  • Pulapre Balakrishnan, M Parameswaran

India has seen lower inflation by historical standards, for the past five years. This has been attributed by some observers to the adoption of inflation targeting by the country’s central bank, the Reserve Bank of India. In particular, it has been asserted that the taming of inflation reflects the anchoring of expectations of it through inflation targeting. We evaluate these claims. Our estimates indicate that there is no basis to the claim that inflation has been lowered due to the anchoring of expectations. On the other hand, we are able to fully account for the trajectory of inflation in India in terms of an explanation of inflation other than the one on which inflation targeting is premised.

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