ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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An Index to Assess the Stance of Monetary Policy in India in the Post-Reform Period

The Reserve Bank of India has formally adopted the "multiple indicator approach" in the conduct of monetary policy since April 1998. During this period, sole reliance on traditional indicators of monetary aggregates or policy rates is not adequate to reflect the stance of monetary policy. This paper develops a monetary policy index by synthesising the extracted signals from the policy documents and quantitative information embedded in key indicators. The mpi so constructed was used to assess the impact of monetary policy on macroeconomic variables such as interest rates, bank credit, inflation, and output growth during the post-reform period. It was observed that while monetary policy has an instant influence on interest rates, the impact on inflation and output was realised with a lag of around 6 to 18 months.

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