NO : WP-2024-015
AUTHOR : Yadavindu Ajit and Taniya Ghosh
TITLE : A historical perspective on India’s inflation persistence: a quantile analysis
ABSTRACT :
This study investigates historical inflation persistence in India under three distinct regimes: monetary targeting, multiple indicator, and inflation targeting (IT). Previous stud- ies for India relied heavily on mean-based estimation techniques, which are biased when inflation has a skewed distribution and do not account for the tail behavior of inflation. As a result, we use a quantile-based estimation approach to test for persistence in in- flation, gaining insights into the stationary properties of various parts of the distribution rather than just the mean. Our regime-specific results point to asymmetric inflation be- havior, with varying persistence depending on the inflation-affecting shock. We observe high inflation persistence during the multiple indicator regime, which declines with the implementation of IT, particularly in the Pre-COVID sample. Our findings show that imple- menting IT has been beneficial in reducing inflation persistence in developing countries such as India. However, the IT regime was not very effective during COVID-19 in reduc- ing inflation persistence. Therefore, given the intransient nature of inflation in emerging economies, central banks should exercise more caution and patience.
Keywords: Inflation Persistence; Monetary Regime; Quantile regression
JEL Code: C21, E31, E52
Weblink: http://www.igidr.ac.in/pdf/publication/WP-2024-015.pdf
