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

Articles By Inflation

Current Inflation in India

Following the standard percepts for dealing with supply shocks, monetary policy continued to be easy for an extended period, while simultaneously huge fiscal stimuli were applied. Even when a more restrictive monetary stance was taken, the measures were not strong enough to restrain inflationary expectations. A soft monetary policy with a sizeable fiscal deficit can harden inflationary expectations and a perpetuation of a new higher normal for inflation.

Union Budget 2023–24

Consolidation is necessary, but so is stimulus. The budget ably attempts both through gradual deficit reduction and better expenditure composition. But success also needs coordination with monetary policy and with states. Further, inflation-lowering supply-side action will enable countercyclical smoothing; stronger institutions and incentives can improve state capex and public service delivery.

Inflation Theory Comes Full Circle

A public interchange among some leading macroeconomists suggests a change in the way inflation is perceived by the profession. It is increasingly being recognised that inflation can be the outcome of a conflict over income, reflected in the continuous attempt by the firms to raise prices and by the workers to raise wages in order to gain a larger share of it. At least some part of the inflation in India can be seen as a conflict over income shares and sketches a theory of inflation suited to its economy. Against this background, the effectiveness of inflation targeting is touched upon—the inflation-control strategy of the Reserve Bank of India—and the necessary steps to curb inflationary pressure in India are pointed out.

Monetary Policy Announcements of the Reserve Bank of India and the Role of Information Shock

Inflation-targeting central banks supplement their monetary policy announcements with communication in the form of speeches and publication of text documents. The markets react to the surprise component of the rate action and the communication by the central bank. Thus, the monetary surprise derived from the reaction of markets, following a policy announcement, is agglutinated with the central bank information. The present paper attempts to identify and examine the efficacy of such an information shock in influencing the inflation expectations of households, interest rate expectations of agents, output and inflation.

Need for Credit Resilience Score in India

Paired with the borrower score/ rating, a credit resilience score would better equip the fi nancial institutions to account for borrower resilience and make credit decisions accordingly. The requirement for CRS in India helps credit to fl ow uninterruptedly during good and bad times. Recognising the parameters used in the existing credit score for individuals and corporate credit rating, a framework for the development of CRS is suggested.

Do Machine Learning Techniques Provide Better Macroeconomic Forecasts?

Machine learning techniques are now very common in many spheres, and there is a growing popularity of these approaches in macroeconomic forecasting as well. Are these techniques really useful in the prediction of macroeconomic outcomes? Are they superior in performance compared to their traditional counterparts? We carry out a meta-analysis of the existing literature in order to answer these questions. Our analysis suggests that the answers to most of these questions are nuanced and conditional on a number of factors identified in the study.