Abstract

The role of the monetary policy in any country is to achieve higher rate of growth with a stableinflation rate. These objectives become all the more important in an emerging economy such as India.Since 2009 the monetary authority has been giving higher preference to price control and so hasincreased the repo rate, or not reduced it, even after constant pressure from the government. Underthe recommendation of the Chakraborty Committee since 1998-99, India has been following amultiple targeting approach where the only target or objective is not either price control or highergrowth but multiple. However post US crisis, since 2010 it has been trying to target or controlinflation. Every increase in the repo rate has been justified by the Governor of Reserve Bank of Indiaas necessary to control uncontrollable inflation rate. But ideally, according to many theories andstudies chasing inflation is not suitable for our country. In the light of all this, the present paperstudies some important factors affecting inflation which can help us analyze the monetary policyresponse to inflation. The paper uses annual time series data to study the effectiveness of monetarypolicy in controlling inflation. Granger causality is also tested across inflation and the factorsaffecting it, in order to study influential factors and future policy actions. The results drawn are mixed in the multivariate linear regression model.

Authors and Affiliations