ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
-A A +A

Cost and Benefit of Disinflation Policy in India

The Reserve Bank of India’s monetary policy stance is based on assertions that there is no trade-off between inflation and growth and that disinflation will result in more growth. This note examines recent empirical evidence on the direction of causality for growth and infl ation, and the short-run costs and long-run benefits of a deliberate policy of disinflation. There is no support for the first assertion because a regular trade-off does exist in India, imposing substantial short-run costs for deliberate disinflation. There is strong evidence for causality from growth to inflation, but the reverse cannot be ruled out. Under such conditions, the RBI should hold nominal growth of money supply and allow supply-side policies by the government to bring down inflation.



Subscribers please login to access full text of the article.

New 3 Month Subscription
to Digital Archives at

649for India

$20for overseas users

Get instant access to the complete EPW archives

Subscribe now

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top