Consumers spend time and energy in finding out about products in which they have an interest (Cha... more Consumers spend time and energy in finding out about products in which they have an interest (Charters & Pettigrew, 2006; Csikszentmihalyi, 1975; Feldman & Armstrong, 1975). Involvement with products or brands is governed by the capacity of the product to satisfy the needs of individuals and augment their selfimage. Consumers seek information about products that are closely aligned with their pastimes and hobbies (Mathwick & Rigdon, 2004), and develop an enduring involvement with those product categories that are related to their interests and self
The empirical literature on identification and measurement of the impact of monetary policy shock... more The empirical literature on identification and measurement of the impact of monetary policy shocks on the real side of the economy is fairly comprehensive for developed economies but very limited for emerging and transition economies. In this study, we propose an identification scheme, for a developing economy (taking India as a case study), which is able to capture the monetary transmission mechanism without giving rise to empirical anomalies. We use a VAR approach with recursive contemporaneous restrictions and identify monetary policy shocks by modelling the reaction function of the central bank and structure of the economy. The effect of monetary policy shocks on the exchange rate and other macroeconomic variables is consistent with the predictions of a broad set of theoretical models. This setup is used to build a hypothetical case of inflation targeting where the monetary policy instrument is set after looking at the current values of inflation only. This is in contrast with the 'multiple indicator approach' currently followed by the Reserve Bank of India. The results in this study suggest that the demand effects of interest rate are stronger than exchange rate effects and there is evidence of mitigation of potential conflict between exchange rate and interest rate, one of main monetary policy dilemmas of the RBI, in the inflation targeting case.
This article looks at the preconditions that an emerging economy needs to fulfill, before it can ... more This article looks at the preconditions that an emerging economy needs to fulfill, before it can adopt inflation targeting as a monetary policy regime. The study is conducted using the Indian economy as a case study. We conduct sector-wise analysis of the Indian economy to evaluate the independence of India’s monetary policy from fiscal, external, structural and financial perspectives. Dominance from any of these sectors may divert monetary policy from the objective of maintaining price stability in the economy. Our analysis suggests that among the four dominance issues, the issue of “structural dominance” is the most acute for India. Supply shocks, hitting the economy due to structural bottlenecks, pose a major threat to the independent conduct of monetary policy. This study concludes that inflation band targeting with a wide target range would be a feasible monetary policy option for India.
The authors acknowledge helpful remarks on earlier versions from Professor Gary Barrett and two a... more The authors acknowledge helpful remarks on earlier versions from Professor Gary Barrett and two anonymous referees. Helpful comments from seminar participants at the RMIT are also gratefully acknowledged. The authors are grateful to Kompal Sinha for calculating the standard errors of the spatial cost of living indices that required special programming. The disclaimer applies.
Consumers spend time and energy in finding out about products in which they have an interest (Cha... more Consumers spend time and energy in finding out about products in which they have an interest (Charters & Pettigrew, 2006; Csikszentmihalyi, 1975; Feldman & Armstrong, 1975). Involvement with products or brands is governed by the capacity of the product to satisfy the needs of individuals and augment their selfimage. Consumers seek information about products that are closely aligned with their pastimes and hobbies (Mathwick & Rigdon, 2004), and develop an enduring involvement with those product categories that are related to their interests and self
The empirical literature on identification and measurement of the impact of monetary policy shock... more The empirical literature on identification and measurement of the impact of monetary policy shocks on the real side of the economy is fairly comprehensive for developed economies but very limited for emerging and transition economies. In this study, we propose an identification scheme, for a developing economy (taking India as a case study), which is able to capture the monetary transmission mechanism without giving rise to empirical anomalies. We use a VAR approach with recursive contemporaneous restrictions and identify monetary policy shocks by modelling the reaction function of the central bank and structure of the economy. The effect of monetary policy shocks on the exchange rate and other macroeconomic variables is consistent with the predictions of a broad set of theoretical models. This setup is used to build a hypothetical case of inflation targeting where the monetary policy instrument is set after looking at the current values of inflation only. This is in contrast with the 'multiple indicator approach' currently followed by the Reserve Bank of India. The results in this study suggest that the demand effects of interest rate are stronger than exchange rate effects and there is evidence of mitigation of potential conflict between exchange rate and interest rate, one of main monetary policy dilemmas of the RBI, in the inflation targeting case.
This article looks at the preconditions that an emerging economy needs to fulfill, before it can ... more This article looks at the preconditions that an emerging economy needs to fulfill, before it can adopt inflation targeting as a monetary policy regime. The study is conducted using the Indian economy as a case study. We conduct sector-wise analysis of the Indian economy to evaluate the independence of India’s monetary policy from fiscal, external, structural and financial perspectives. Dominance from any of these sectors may divert monetary policy from the objective of maintaining price stability in the economy. Our analysis suggests that among the four dominance issues, the issue of “structural dominance” is the most acute for India. Supply shocks, hitting the economy due to structural bottlenecks, pose a major threat to the independent conduct of monetary policy. This study concludes that inflation band targeting with a wide target range would be a feasible monetary policy option for India.
The authors acknowledge helpful remarks on earlier versions from Professor Gary Barrett and two a... more The authors acknowledge helpful remarks on earlier versions from Professor Gary Barrett and two anonymous referees. Helpful comments from seminar participants at the RMIT are also gratefully acknowledged. The authors are grateful to Kompal Sinha for calculating the standard errors of the spatial cost of living indices that required special programming. The disclaimer applies.
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Papers by Ankita Mishra