Hutchison, Michael and Sengupta, Rajeswari and Singh, Nirvikar (2011): Dove or Hawk? characterizing monetary regime switches during financial liberalization in India.
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The last decade has seen a worldwide move by emerging markets to adopt explicit or implicit inflation targeting regimes. A notable and often discussed exception to this trend, of course, is China which follows pegged exchange rate regime supported by capital controls. Another major exception is India. It is not clear how to characterize the monetary regime or identify the nominal monetary anchor in India. Is central bank policy in India following a predictable rule that is heavily influenced by a quasi inflation target? To address this point, we investigate monetary policy regime change in India using a Markov switching model to estimate a time-varying Taylor-type rule for the Reserve Bank of India. We find that the conduct of monetary policy over the last two decades can be characterized by two regimes, which we term ‘hawk’ and ‘dove.’ In the first of these regimes, the central bank reveals a greater relative (though not absolute) weight on controlling inflation vis-à-vis narrowing the output gap. The central bank was in the “dove” regime about half of the sample period, during these episodes focusing more on the output gap and exchange rate targets to stimulate exports, rather than on moderating inflation. India is following its own direction in the conduct of monetary policy, seemingly not overly influenced by the emphasis on quasi-inflation targeting seen in many emerging markets.
|Item Type:||MPRA Paper|
|Original Title:||Dove or Hawk? characterizing monetary regime switches during financial liberalization in India|
|Keywords:||Monetary policy; Regime switches; Central banking; Inflation targeting|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
F - International Economics > F3 - International Finance
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
|Depositing User:||Rajeswari Sengupta|
|Date Deposited:||27. Apr 2011 06:56|
|Last Modified:||15. Feb 2013 15:19|
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