The Effects of Monetary Policy on Output and Inflation in India: A Time-varying Approach

The study investigates whether the effects of monetary policy shocks on output and inflation have changed over time in India. By estimating a Time-varying Parameter Vector Autoregression model, we find substantial variations in the effects of monetary policy shock on both output and inflation. The impulse responses reveal that the effect of monetary policy shocks on inflation has weakened over time, while on output, it has strengthened. Our results also suggest that the adoption of the inflation-targeting framework has been beneficial in moderating inflation volatility.