The IUP Journal of Applied Economics
Economic Performance Indicators Under Different Monetary Policy Frameworks: Evidence from India

Article Details
Pub. Date : Jan, 2019
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE31901
Author Name : Madhvi Sethi, Saina Baby and Vandita Dar
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 17

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Abstract

Monetary policy has been formulated with the purpose of achieving the twin objectives of economic growth and price stability through the successful working of the transmission mechanism. Monetary policy-induced changes in the nominal variables are expected to impact the real economic indicators like GDP and inflation. The evolution of Reserve Bank of India’s (RBI) monetary policy has been divided into four distinct frameworks: pre-monetary targeting, monetary targeting, multiple indicator approach and eventually an inflation-targeting framework since 2015. RBI’s monetary policy strategies have undergone substantial transformation in the last 70 years. The success of each monetary policy framework can be assessed by comparing the impact of monetary policy changes on various economic performance indicators. The purpose of this paper is to compare the performance of economic indicators under different monetary policy frameworks in the postindependence period. The economic performance indicators used in the study are inflation and output gap. Analyzing the monthly data from April 1982 to March 2017, the study finds that the multiple-indicator and the inflation-targeting regimes have had most success in balancing the twin objectives of growth and inflation.


Description

Monetary policy has been formulated with the purpose of achieving the twin objectives of economic growth and stable prices through the successful working of the transmission mechanism. Monetary policy-induced changes in the nominal variables are expected to impact the real economic indicators like GDP and inflation. Reserve Bank of India (RBI) has started using monetary policy instruments extensively since the 1950s. The evolution of RBI’s monetary policy has been divided into four distinct frameworks. Pre-monetary targeting framework existed during 1947 to 1985. Then RBI came up with a specific monetary targeting framework during 1985 to 1998 by defining exact money supply (M3) growth target to achieve the monetary policy objectives.

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