The Role of Inflation Targeting in Anchoring Long-Run Inflation Expectations: Evidence from India

Kishor, N. Kundan and Pratap, Bhanu (2023): The Role of Inflation Targeting in Anchoring Long-Run Inflation Expectations: Evidence from India.

Abstract

This paper explores the effects of India's adoption of inflation targeting (IT) as a monetary policy framework in 2016 on long-term inflation expectations in the private sector. Using data from 2010 to 2022, including inflation forecasts from professional forecasters and an inflation sentiment index derived from newspaper articles, our analysis assesses the impact of inflation sentiment on both long-run and short-run inflation expectations. Our findings suggest that post-2016, long-term inflation expectations became less sensitive to inflation sentiment, indicating that India's transition to IT may have contributed to anchoring these expectations in line with the central bank's target.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation Targeting, Inflation Expectations, Unobserved Component Model, Inflation Sentiment, Indian Economy
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; 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 > E58 - Central Banks and Their Policies

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