Date of Award

Spring 2026

Language

ENGLISH

Embargo Period

5-1-2026

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

College/School/Department

Department of Economics

Program

Economics

First Advisor

KAJAL LAHIRI

Second Advisor

YUE LI

Third Advisor

BEN GRIFFY

Keywords

Inflation Targeting, Dynamic Stochastic General Equilibrium, Text Mining, Inflation Expectations, Synthetic Inflation, Central Bank Communication

Subject Categories

Econometrics | Macroeconomics

Abstract

This dissertation explores the efficacy and impact of inflation targeting as the monetary policy framework with a specific focus on India after its formal adoption of the inflation-targeting framework in 2016.

The first chapter focuses on the history of monetary policy framework in India. It discusses, in detail, the different monetary policy frameworks, namely Credit Planning, Flexible Monetary-Targeting, and Multiple-Indicator approaches, adopted by the Reserve Bank of India (RBI) (i.e., the monetary authority of the country), before arriving at the adoption of the inflation-targeting framework. The monetary policy transmission process in India during the different global turmoil segments of the timeline, such as pre-and post-Global Financial Crisis (GFC), COVID-19 period, Russia-Ukraine war, high inflation phase, front loading of interest rate, etc., is also discussed.

The second chapter develops a Dynamic Stochastic General Equilibrium (DSGE) model, considering India as a small open economy, and subsequently, generates one -to four-quarter ahead out-of-sample forecasts of Indian CPI series, by using the monetary policy rate of India as a conditioning variable. This chapter also de­velops a two-country DSGE model, with two asymmetric economies, according to their size and influence on the international trade and financial markets. These two economies are the United States of America (USA) as the developed country and India as a price-taking economy. Because India cannot influence international financial markets, it is defined as a price-taking economy. The strong dependence of India on the US economy in international trade and investments, external affairs, geopolitical issues, etc., has motivated the construction of this two-country model. The Indian economy is considered the home economy, whereas the US economy is its foreign counterpart. Thereafter, based on the model calibration and stochastic simulation, the impulse response functions of the home and foreign variables to each of the home and foreign productivity and monetary policy shocks are developed and analysed to identify the impact of the US productivity and policy rate shocks on India’s macroeconomic variables.

The third chapter raises a serious concern over the effectiveness of the inflation-targeting framework for maintaining a low and stable inflation rate, by citing the surge in inflation and breaches of target bands of various economies, mainly due to output losses, supply bottlenecks, logistics disruptions, energy price rise, geopolitical tension, etc. during the COVID-19 pandemic period (2020-2022) and more recently, during the Russia-Ukraine war. In order to quantify the effectiveness of the inflation-targeting framework, this study uses the synthetic control method (SCM), for each economy in a group of 46 inflation-targeting economies (i.e., 16 advanced and 30 emerging market and developing economies including India).

The fourth chapter raises the question of whether the monetary policy commu­nications by the RBI anchor inflation expectations in India, and whether anchoring is evident and whether the adoption of inflation targeting policy plays any sub­stantial role in anchoring. Based on the corpus of monetary policy documents and using the text mining approach, four quarterly monetary policy communications in­dicators, viz., total word counts, readability of the documents, sentiment, and tone of policy stances are built. Thereafter, the derived common factor of these four communication indicators is used to judge the effectiveness of anchoring inflation expectations.

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This work is licensed under the University at Albany Standard Author Agreement.

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