A Recalibrated Quarterly Projection Model (QPM 2.0) for India

The RBI had had developed its Quarterly Projection Mode in 2016.

Team of RBI researchers (Joice John, Deepak Kumar, Asish Thomas George, Pratik Mitra, Muneesh Kapur and Michael Debabrata Patra) update the RBI’s Quarterly Projection Model (QPM 2.0) in the new article in Feb-23 Bulletin.

This article presents the details of the updated quarterly projection model for India. The article revisits the model structure and coefficients with more India-centric characteristics to enrich its performance and relevance. It generates medium-term projections of inflation and growth, and undertakes policy analysis consistent with achieving targets/mandate set under the flexible inflation targeting (FIT) framework. The revised and updated model is dubbed as QPM 2.0. This project was carried out under UTKARSH 2022, the medium-term strategy of the RBI.


    1. The major enhancements brought about in QPM 2.0 are inclusion of (i) fiscal-monetary policy interaction in the model, (ii) a more nuanced modelling of India-specific fuel pricing, (iii) capital flows, exchange rate dynamics and central bank’s forex market interventions.
    2. For major macro variables like inflation, the analysis shows that the forecast performance of QPM 2.0 is better than alternate time series models for the medium-term horizon (5-8 quarters) – the horizon that matters most for the monetary policy decision.
    3. QPM 2.0 analysis also shows that the FIT framework helped in anchoring inflation expectations post introduction of FIT, leading to lower headline inflation as well as core inflation. The disinflation during this period was also supported by favourable shocks emanating from the supply side, both food and fuel, as well as from a prudent fiscal policy. In the post-COVID period, persistent supply chain disruptions and sustained input cost pressures, amidst a negative output gap have led to inflationary pressures.

Quite a paper this..


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