Like many other emerging market economies, India is practising flexible inflation targeting through monetary policy. As the success of inflation targeting regime largely depends upon the ability of the central bank to predict the future path of inflation accurately, it is important to identify the predictors of inflation. The paper empirically examines the informational role of commodity futures prices for monetary policy in India considering the possible presence of asymmetries. Employing the Nonlinear Autoregressive Distributed Lag (NARDL) as estimation strategy, this study is probably the first attempt to examine the asymmetric relationship between commodity futures prices and macroeconomic variables relevant to monetary policymaking. The results are expected to assume significance for the policymakers as the presence of pass-through effects of commodity futures prices confirms its role as an information variable in the process of monetary policy making in India.
Commodity futures prices pass-through and monetary policy in India: Does asymmetry matter?