Working Paper: NBER ID: w22948
Authors: Laurence Ball; Anusha Chari; Prachi Mishra
Abstract: This paper examines the behavior of quarterly inflation in India since 1994, both headline inflation and core inflation as measured by the weighted median of price changes across industries. We explain core inflation with a Phillips curve in which the inflation rate depends on a slow-moving average of past inflation and on the deviation of output from trend. Headline inflation is more volatile than core: it fluctuates due to large changes in the relative prices of certain industries, which are largely but not exclusively industries that produce food and energy. There is some evidence that changes in headline inflation feed into expected inflation and future core inflation. Several aspects of India’s inflation process are similar to inflation in advanced economies in the 1970s and 80s.
Keywords: inflation; India; Phillips curve
JEL Codes: E31; E58; F0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expected inflation (E31) | core inflation (E31) |
| lagged inflation rates (E31) | expected inflation (E31) |
| output gap (E23) | inflation (E31) |
| headline inflation (E31) | expected inflation (E31) |
| inflation (E31) | expected inflation (E31) |