Ajay Chhibber, George Washington University
Abstract: Past studies of India’s inflation follow either a Philips Curve or a structuralist approach which use a fixed mark-up cost push model. In our model we combine the two approaches with a variable markup model where excess money balances determine the markup. This allows our model to capture the effects of monetary policy as well as cost push factors such as food prices and oil prices in understanding India’s inflation which has in periods deviated from world inflation despite increasing trade and financial integration with the rest of the world.
JEL Classification Codes: E02, E12, E31, E41, E51, E52.