Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/217667 
Authors: 
Year of Publication: 
2019
Citation: 
[Journal:] Journal of Central Banking Theory and Practice [ISSN:] 2336-9205 [Volume:] 8 [Issue:] 1 [Publisher:] De Gruyter Open [Place:] Warsaw [Year:] 2019 [Pages:] 111-132
Publisher: 
De Gruyter Open, Warsaw
Abstract: 
This paper uses time-series data from India and tests for asymmetries in policy preferences of the Reserve Bank of India (the Central Bank of India, hereafter RBI). The results show evidence in favour of preference asymmetries in monetary policy reaction function in India and hence nonlinearities in the Taylor-rule. Evidence of both recession avoidance preference (RAP) as well as inflation avoidance preference (IAP) is established. And it is found that RAP is dominant over IAP, thus confirming nonlinearities in reaction function which in the present case turns out to be concave in inflation and output gap. Further, the results indicate preference asymmetries in both the objectives. The coefficient weights to positive and negative inflation and output gap differ over long time horizons thus confirming asymmetric policy preferences. Specifically the RBI seems to be more averse to a negative output gap (contraction) as compared to an equal positive gap. In addition, the RBI appears to be more averse to a positive inflation gap as compared to an equal negative gap.
Subjects: 
Reaction function
Taylor-rule
Preference asymmetry
Output gap
Inflation gap.
JEL: 
E52
E58
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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