Archive for May 6th, 2011

Headline vs. Core inflation – India’s Case

May 6, 2011

This is the title of my new paper. The findings are:

The analysis looks at the linkages between core and headline inflation in India. The findings are that core inflation moves along with headline inflation and the linkage has become stronger in 2000s. The prices of food and fuel are expected to remain elevated leading to higher inflation. The current inflation is much higher than the threshold level of inflation and is likely to hamper growth growing ahead. The paper mainly mentions monetary policy and is silent on the role of fiscal policy.

However, as we have seen fiscal policy has major impact on inflation via different channels one needs to keep a close watch on the government’s fiscal targets as well. In a research paper, RBI economists Jeevan Kumar Khundrakpam and Sitikantha Pattanaik (Global Crisis, Fiscal Response and Medium-term Risks to Inflation in India) suggest that one percentage point increase in the level of the fiscal deficit could cause about a quarter of a percentage point increase in the Wholesale Price Index (WPI). In its Annual Monetary Policy 2011-12, RBI highlights that fiscal targets set in the budget could be challenged by the higher subsidy burden stemming from higher international crude oil prices. This could put further pressure on the inflation outlook. Overall, inflation continues to remain a major risk for Indian economy.

Comments/suggestions are welcome.

Does WTO matter?

May 6, 2011

Pushan Dutt , Ilian Mihov and Timothy Van Zandt have this paper on the topic. The summary is given in voxeu.

The authors say WTO membership has led to rise in extensive margin trade (exporting more varieties) rather than intensive margin trade (existing varieties).

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Service could be a new growth engine for poor countries

May 6, 2011

Ejaz Ghani,  Arti Grover and Homi Kharas have this interesting take on services. They say we usually think that way to rid of poverty is to push agriculture labour to labour intensive industry. Once they  get higher incomes they can educate their children. The children can then move to more skill-intensive industries and services earning higher incomes and supporting their families.

The authors say the earlier beliefs about services are not really right and they could actually be used to fight poverty as well.

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