An Augmented Taylor rule for India’s Monetary Policy: Does Governor Regime Matters?

Bhuyan, Biswabhusan and Sethi, Dinabandhu (2016): An Augmented Taylor rule for India’s Monetary Policy: Does Governor Regime Matters?

Abstract

This paper examined the monetary policy stance in India during the governors’ regime of Jalan- Reddy-Subbarao- Rajan. An Augmented Taylor Rule is employed to estimate monetary policy response for each period using monthly data. The results revealed that the governor regime matters in the monetary policy response. When output gap has been an important concern during Jalan, Subbarao and Rajan’s period, inflation remained a major concern for Reddy and Rajan’s regime. Interestingly, the interest rate is highly responsive to changes in exchange rate during Rajan period. These findings are consistent with the conditions of economy during those periods. In addition, the exchange rate and output gap remained a greater concern for policy maker in post-crisis period. Nevertheless, we find policy inertia during all regimes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary policy, Taylor’s rule, Inflation, Output gap, Hodrick-Prescott filter
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; 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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