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

Monetary Policy FrameworkSubscribe to Monetary Policy Framework

Flawed Cartography?

The Urjit Patel Committee has come out in favour of the Reserve Bank of India moving towards a flexible infl ation targeting system. This approach to monetary policy is a product of the much-criticised "new consensus macroeconomics", a school of thought that is credited with causing the recent global fi nancial crisis. The objectives for monetary policy that the committee suggests are not only theoretically unwarranted, but also unjustifi ed for the current state of evolution of India's financial system.

And a Little Child Shall Lead You...

An elementary model of the Urjit Patel report is formulated here. Along with the positive repo rate-infl ation rate target connection, open economy controls as well as institutional data are potentially adjusting variables

Off-target on Monetary Policy

Disregarding international experience of recent years, the Urjit Patel Committee recommends that the Reserve Bank of India pursue a single objective of infl ation targeting. It focuses on the interest rate to control infl ation (by influencing inflation expectations), though experience has shown that in India this mechanism has a weak impact on inflation and a stronger one on output. It is a disappointing report drawing on a textbook reading of the New Keynesian model.
Back to Top