Indian monetary policy entered a new era more than a year ago. One important question that deserves more public attention is whether the new flexible inflation targeting framework is being built on robust theory. (See: Monetary Policy In India: A Modern Macroeconomic Perspective, edited by Chetan Ghate and Kenneth M. Kletzer, Springer, 2016.) Indian DSGE models will also have to take into account issues like a large informal sector (an important “friction”). Even economists such as Olivier Blanchard who pioneered the early DSGE models have accepted the need to reinforce them.

Source: Mint May 23, 2017 18:00 UTC