سیاست های پولی و رفتار تورم در هند : آیا نیاز به اصلاحات نهادی وجود دارد؟
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|26513||2009||12 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Asian Economics, Volume 20, Issue 1, January 2009, Pages 13–24
Inflation rates in a number of developed countries follow a common trend over the past five decades: inflation starts out low in the 1950s, rises for a time before peaking in the 1970s, and then falls back to initial levels. Interestingly the behaviour of trend inflation in India broadly exhibits such a pattern. This similarity in the behaviour suggests that any explanation of inflation ought to apply across countries. To this end we construct a reduced-form inflation model for India that encompasses various well-known policy mistake theories as special cases. The restriction imposed by each of these theories on the behaviour of inflation is tested empirically. Reduced-form estimates lend support to all these theories. Although the reason for the inflation bias differs from one theory to the other, the mechanism at the heart of these theories are in fact quite similar. They all lay responsibility for inflation with the nature of monetary institutions. We use these results to interpret India's inflation experience over the past five decades and discuss the implications for institutional reform.
The Indian economy endured a persistent inflation episode that lasted from the early 1960s to the mid-1990s. In contrast her inflation record over the past decade has been far better. Not only has average inflation been lower, its variability has also been lower too.1 From a policy perspective the critical question is: How did this shift come about? And, more importantly, under current institutional arrangements for conducting monetary policy in India, will it last? To answer this requires identifying the cause of the rise and fall in inflation expectations. Theories about inflation (and inflation expectations) in OECD economies roughly fall into one of two categories: policy mistake theories (where the emphasis is on the institutional structure governing monetary policy), or bad luck theories (where the emphasis is on chance events outside the central bank's control). Among policy mistake theories the time-inconsistency problem highlighted by Kydland and Prescott (1977) and Barro and Gordon (1983) has often been cited as a possible reason for the rise and fall of inflation in OECD countries. In their model explanation for sub-optimal inflation relies on the presumption that policymakers use monetary policy to raise output (or employment) above its natural level. 2 This in turn generates a reduced-form in which inflation depends on the extent of supply-side distortions or other possible sources of ‘temptation to reflate’. From an empirical standpoint this sub-optimal equilibrium imposes restrictions on the reduced-form inflation model which in turn has the potential to explain the dynamics of inflation over time (see Ireland, 1999 and Parkin, 1993). Specifically, the time-inconsistency model implies that the higher (lower) the natural rate of unemployment is, the higher (lower) the equilibrium inflation rate is. This implication of the model can be tested for empirically. Nevertheless, despite the time-inconsistency model's popularity it has been questioned by both policymakers as well as by some academics on the grounds of realism (Blinder, 1998 and McCallum, 1997). Such questioning led to the emergence, since the late nineties, of a new body of literature that incorporates the possible existence of asymmetries in the objective functions of central banks—the new inflation bias hypothesis, exemplified by Ruge-Murcia, 2003a, Ruge-Murcia, 2003b and Ruge-Murcia, 2004 and Cukierman and Gerlach (2003). More precisely, this literature demonstrates that when the central bank is also expected to engage in stabilization of output (or employment), some uncertainty about the future state of the economy and asymmetric concerns about positive and negative output gaps combine to create an inflation bias. Here, a bias arises in spite of policymakers targeting the natural rate of output. From an empirical standpoint the new inflation bias hypothesis implies that the slope parameter in a regression of inflation on the conditional variance of the supply shocks should be significant. A different interpretation of the great inflation during the 1970s, such as those of Chari, Christiano, & Eichenbaum (1998) and Clarida, Galí, & Gertler (2000), suggest that a bad supply shock (e.g. increase in crude oil prices) triggered a jump in expected inflation, which then became transformed into permanently high inflation because of the nature of monetary regime in existence. This is the so-called expectations trap hypothesis. An interesting question that arises here is what caused inflationary expectations to rise in the first place? According to the expectations trap hypothesis, the cause lies with the nature of monetary institutions themselves. If, for example, the nature of those institutions is such that private agents cannot imagine a set of circumstances in which the central bank would accommodate a rise in inflation, then expectations traps just could not happen. From an empirical standpoint the expectations trap hypothesis suggests that if the policymaker does not find a way to credibly commit to not validating high inflation expectations, then the slope parameter in a regression of inflation on the level of supply shock should be significant. 3 Finally, in contrast to policy mistake theories, bad luck theories or what Nelson (2005) calls monetary policy neglect hypothesis subscribe to the non-monetary view of inflation. According to this view, inflation is a purely non-monetary phenomenon: inflation is driven by “cost-push” factors, and these factors dominate its behaviour regardless of what course monetary policy takes. 4 Thus, the crucial difference between the expectations trap hypothesis and the monetary policy neglect hypothesis is that in the former supply shocks interacting with the monetary regime explain inflation dynamics while the later conveniently absolves the government from having any role in creating inflation. 5 Our objective in this paper is to empirically evaluate whether any of these well-known policy mistake theories can account for the behaviour of inflation in India. To that end, we construct a model that encompasses several of these theories as special cases. The restriction imposed by each of these theories on the behaviour of inflation is tested for empirically. To anticipate our findings, our empirical results lend support to all these theories. Although the reason for the bias differs from one theory to the other, the mechanism at the heart of these theories are in fact quite similar. They all lay responsibility for inflation with the nature of monetary institutions. We use these results to interpret India's inflation experience over the past five decades and discuss the implications for institutional reform. The remainder of this paper is organized as follows. Section 2 provides a brief overview of inflationary trends in India. We describe our model in Section 3 and solve for the implied inflation reduced-form. Section 4 describes the data and reports econometric results. Section 5 provides concluding remarks and discusses policy implications.
نتیجه گیری انگلیسی
We began this paper by recalling that the Indian economy endured a persistent inflation episode that lasted from the early 1960s to the mid-1990s. Since then there has been a marked decline in inflation and its volatility. We then asked two questions: How did this shift come about? And, more importantly, under current institutional arrangements for conducting monetary policy in India, will it last? To answer these questions we constructed a reduced-form inflation model for India that encompasses various well-known policy mistake theories as special case. The restriction imposed by each of these theories on the behaviour of inflation is tested for empirically. Our empirical results lend credence to all these explanation. This is not an altogether surprising result. Although, the reason for the bias differs from one theory to the other, the mechanism at the heart of these theories are in fact quite similar. All these theories emphasize that to prevent inflation (and inflationary expectations) from gaining a permanent hold, institutions must be designed so that the central bank's commitment to fighting inflation is not in doubt. In the absence of such a commitment, all these theories predict that an adverse shock can trigger a jump in inflation expectations, which then becomes transformed into permanently high inflation. Our results are in particular consistent with the view that inflation's initial rise and subsequent fall over the past five decades in India can be explained by a lack of institutional commitment towards price stability. When coupled with a series of adverse supply-side developments during the 1960s, 1970s, 1980s and early 1990s this inability to commit yields a rise in inflationary expectations. In contrast, the low inflation episodes of the 1950s and the late 1990s represent the product of good fortune (in the form of a series of positive supply-side developments) interacting with a lack of commitment technology. Although the results reported in this paper are suggestive, they should be interpreted with caution for at least three reasons. First, since the publication of Sargent (1999) much research has demonstrated the empirical significance of learning theories. These theories interpret the dynamics of inflation in terms of the monetary authority's changing beliefs about the Phillips curve. It may well be that lower inflation at the end of the sample period reflects learning on the behalf of policymakers. This would imply that having learnt the lessons of high (and variable) inflation in the past, Indian policymakers are wary of making future mistakes—which would not need institutional reform. In this regard we would point out that the learning hypothesis also predicts that as observations of lower and more stable inflation accumulates and evidence against the natural-rate hypothesis develop policymakers could once again succumb to the temptation to exploit the Phillips curve. Thus, the learning hypothesis is also crying out for institutional reform. It follows that, to prevent a resurgence of 1970s style inflation, the RBI should reinforce as much as possible its commitment to low inflation by institutional, operational, and rhetorical means. Second, India's transition from a controlled economy to a more open economy in the early 1990s has exposed domestic firms to international competition. This may have also lowered the sensitivity of domestic inflation to shocks, thereby flattening the slope of the Phillips curve. This is because increased competition may reduce the cyclical sensitivity of profit margins, as businesses have less scope to raise their prices when domestic demand increases. Exactly the same heightened competitive pressure may also have affected the way businesses have responded to supply shocks. Increased competition as a result of opening up of the economy is clearly another candidate explanation for changing inflation dynamics in India. Third, it is possible that lower inflation may have spilled over from the U.S. to other emerging market economies, due to dislike on the part of monetary authorities in smaller countries of large nominal exchange rate movements with respect to the United States. If so, a fall in U.S. inflation forces monetary authorities in emerging markets to allow domestic inflation to fall too, so as to avoid exchange rate fluctuations. The central banks desire to smooth exchange rate volatility provides another plausible explanation for inflation behaviour in recent years. Ongoing research by the authors seeks to address these issues. Still, given our limited understanding of changing inflation dynamics, it is probably premature to dismiss the role played by monetary institutions.