August 15, 2016

The Currency Question

In this article for MintVivek Dehejia, Resident Senior Fellow at IDFC Institute asks whether in the current global non-system, inflation targeting is the best choice for India.


"The narrower question for India, which obviously is not in a position to shape the global monetary order to its will, would be whether, in the current global non-system, inflation targeting by the RBI is the best amongst available choices. Recall that, at least in theory, a classical inflation-targeting rule disregards the path of the nominal exchange rate, except insofar as it feeds into anticipated future inflation. Thus, at least in theory, an inflation-targeting central bank has no intrinsic interest in stabilizing the exchange rate or even in dampening its volatility (unless these have induced effects on anticipated future inflation.)"

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