RBI paper finds monetary policy undermined by unsustainable deficits

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A working paper, published by the Reserve Bank of India (RBI) on July 26, studies the reasons behind high inflation in India despite tightening of monetary policy, suggesting the presence of a large government debt burden undermines the central bank's credibility.

Authors Pankaj Kumar and Pratik Mitra study monthly Indian inflation data over the period 1981–2011 to estimate the time-varying persistence of inflation. The paper identifies an upward trend in inflation persistence, accompanied by

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