The Role of the New Keynesian Phillips Curve in Shaping India’s Inflation Management

Abstract

the role that the New Keynesian Phillips Curve (NKPC) plays in shaping India's framework for inflation management, particularly the efforts made by the Reserve Bank of India (RBI) to achieve price stability through monetary policy. The NKPC provides a modern theoretical framework that focusses on the interaction of inflation, production gaps, and inflation expectations, which helps to understand the dynamics of inflation in India's rapidly growing and uncertain economy. With an eye towards long-term price stability, anchoring inflation expectations, and reducing inflation volatility, the NKPC has evaluated the RBI's inflation-targeting strategy. this empirical study examines the connection between the output gap, inflation expectations, and economic activity in India through the use of time-series data. Inflation control becomes more challenging due to external factors like commodity price and exchange rate variations, which are taken into consideration. Although the NKPC is helpful for regulating inflation, the findings highlight the need for a more comprehensive monetary policy approach to address both external shocks and structural issues plaguing the Indian economy. a more flexible and multi-faceted strategy for controlling inflation in India that considers the results of the NKPC.