Indira Gandhi Institute of Development Research

It has been eight years since India adopted the inflation targeting (IT) framework for its monetary policy. In this paper we present a comprehensive analysis of the IT regime, addressing several critical aspects. We evaluate the performance of inflation over this period, and review the conduct of monetary policy during and after the Covid- 19 pandemic. We also identify key challenges that persist particularly in context of the Impossible Trilemma and highlight issues that may require further examination in order to improve the effectiveness of the IT framework in the future.

Abstract This paper shows that in a duopoly a firm has no incentives to divest its passive shares in its rival when firms’ strategies are strategic complements. This holds independently whether goods are substitutes or complements and whether firms engage in simultaneous or sequential move product market competition. However, if firms’ strategies are strategic substitutes and are engaged in simultaneous move competition, it is optimal for both firms to fully divest their shares in their rivals under a private placement mechanism via independent intermediaries or under efficient competitive bidding. Yet, in the sequential move game only the follower has such incentives. Notably, under a private placement mechanism via a common intermediary, there are often circumstances under which there are partial or no firms’ divestment incentives, highlighting that the divestment mechanism employed by firms may have a crucial role on their divestment incentives.