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

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Monetary Policy in the Midst of Cost-push Inflation

The Reserve Bank of India adopted inflation-targeting monetary policy based on the New Keynesian 3-equation model. How realistic are the assumptions, and how effective have monetary policy instruments been in controlling the inflation rate? Given India’s structural specificities, what are the implications of cost-push inflation for policy rate and output gap? This paper addresses these questions by identifying alternative theoretical possibilities within a simple 3-equation model and locating the Indian specificity by estimating the Phillips curve and monetary policy rule equation. The analysis points towards the constraints of monetary policy in India due to presence of a flat Phillips curve and indicates the possibility of adverse effect on output gap due to presence of Taylor’s rule.

Taming Inflation by Anchoring Inflation Expectations

By firmly anchoring inflation expectations, monetary policy can prevent a wage-price spiral and moderate the second-round effects of supply shocks, thereby avoiding an inferior macroeconomic outcome of lower growth and higher inflation.

Monetary Growth, Financial Structure, and Inflation

It is argued that a key question of the operation of monetary policy is its decomposition into a price effect and an output effect. Specifically, the
association between the easing of global monetary and liquidity conditions on the one hand, and the significant spurt in inflation, on the other, in recent
times is probed to conclude that across the world, there seems to be an association. The issues of monetary stability, price stability and financial stability are also intimately interlinked.

Some Contemporary and Classical Issues of Money and Finance

Post the pandemic, the world seems to be back on a high-inflation path, and many geographies in the advanced world have started witnessing inflation rates that were prevalent in the early 1970s.

Why Does Extralegal Finance Survive?

Debt, Trust, and Reputation: Extra-legal Finance in Northern India by Sebastian Schwecke, Cambridge: Cambridge University Press, 2022; pp 372, price not stated (hardcover).

How Should Banks Estimate Their Expected Loan Loss Provisions to Survive in Difficult Times?

This article explains how banks can use their forward-looking internal credit risk estimates and apply on loan cash fl ows over different time horizons and assess the impact on loss provisions. Such an estimate based on longer historical data will enable the banks to better foresee the uncertainty pertaining to repayment status of their loans and make loss provisions in a more proactive manner.

Critical Importance of Cooperative Federalism

In addition to the three-pillar framework suggested by the Fifteenth Finance Commission, we suggest four constituents, namely the finance commission, NITI Aayog, goods and services tax, and de facto decentralisation, which will help strengthen the “cooperative” element—a key factor for Indian federation to work effectively. Further, the article focuses on finance commissions empowering the local governments and, in particular, assesses the Fifteenth Finance Commission’s thrust to empower the local bodies.

 

COVID-19 and Insolvency Law

The World Development Report (WDR), 2022 highlights the relevance of adopting effective strategies for maintaining the financial stability of a nation in the wake of COVID-19.

Durable Growth Revival

The recent growth recovery has been uneven as is visible across different sectors of the economy and different segments of the population. This unevenness is hurting the consumption of lower-income households and private investments, which are vital for sustained or durable growth.

The Sraffa Canon

A Reflection on Sraffa’s Revolution in Economic Theory edited by Ajit Sinha, Palgrave Macmillan, 2021; pp xxv+ 601, 14,821 (hardcover).

 

What Must be the Priority of the Budget?

Improving agriculture incomes and boosting consumer demand must be the top priorities.

 

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