A Recalibrated Quarterly Projection Mannequin (QPM 2.0) for India

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

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

This text presents the small print of the up to date quarterly projection mannequin for India. The article revisits the mannequin construction and coefficients with extra India-centric traits to counterpoint its efficiency and relevance. It generates medium-term projections of inflation and development, and undertakes coverage evaluation in step with attaining targets/mandate set below the versatile inflation concentrating on (FIT) framework. The revised and up to date mannequin is dubbed as QPM 2.0. This undertaking was carried out below UTKARSH 2022, the medium-term technique of the RBI.

Highlights:

1. 1. The foremost enhancements caused in QPM 2.0 are inclusion of (i) fiscal-monetary coverage interplay within the mannequin, (ii) a extra nuanced modelling of India-specific gas pricing, (iii) capital flows, change price dynamics and central financial institution’s foreign exchange market interventions.
   2. For main macro variables like inflation, the evaluation exhibits that the forecast efficiency of QPM 2.0 is best than alternate time sequence fashions for the medium-term horizon (5-8 quarters) – the horizon that issues most for the financial coverage choice.
   3. QPM 2.0 evaluation additionally exhibits that the FIT framework helped in anchoring inflation expectations submit introduction of FIT, resulting in decrease headline inflation in addition to core inflation. The disinflation throughout this era was additionally supported by beneficial shocks emanating from the availability aspect, each meals and gas, in addition to from a prudent fiscal coverage. Within the post-COVID interval, persistent provide chain disruptions and sustained enter price pressures, amidst a unfavorable output hole have led to inflationary pressures.

Fairly a paper this..

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