Searching Threshold Inflation for India

A Economics Bulletin

Volume 30, Issue 4

Searching Threshold Inflation for India

Prakash Singh

Institute of Economic Growth

Abstract

The present study is an effort to examine econometrically the presence of threshold level of inflation for India, in an
environment where expected inflation is in double digit. This upward pressure on inflation is mainly due to rise in food
prices; and high investment due to surge in domestic and international demand backed by industrial. High inflation not
only costs central bank of the country but, it also affects the output negatively, if it is beyond the tolerable limit. Study
uses specification of Sarel (1996) and Khan and Senhadji (2001) to estimate the point of threshold. The estimation
result of the study confirms the presence of threshold level of inflation for India at 6 percent inflation rate and thus
advocates the view of maintaining inflation rate below 6 percent for the healthy output growth rate in Indian economy.
But study fails to confirm the same in Sarel (1996) sense.

Views expressed in the paper are of the author alone and are not necessarily of the institute he belongs to. Many thanks to Miss Charanjit Kaur
and Mr. Ram Ashish Yadav (Research Analyst and Senior Research Analyst, respectively, at Institute of Economic Growth) for their valuable
support. The usual disclaimers apply.

Citation: Prakash Singh, (2010) ''Searching Threshold Inflation for India'', Economics Bulletin, Vol. 30 no.4 pp. 3209-3220.

Submitted: May 11 2010. Published: December 02, 2010.

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