Inflation Dynamics and the Role of the New Keynesian Phillips Curve: Evidence from India

Abstract

Indian inflation dynamics, with an emphasis on how the New Keynesian Phillips Curve (NKPC) can be used to understand inflationary tendencies in the Indian economy. A key part of contemporary macroeconomic theory is the NKPC, which places an emphasis on the connection between inflation and actual economic activity via expectations and future-oriented actions. Considering important variables including production gaps, inflation expectations, and real marginal costs, this study empirically analyses the applicability of the NKPC in India's inflation dynamics using time-series data spanning several decades. In a country like India, where the economy is very open, global factors like changes in commodity prices and exchange rates impact the inflationary process. Although the NKPC is a good starting point for investigating inflationary pressures in India, it is critical to include other factors, such as structural rigidities, foreign influences, and shocks on the supply side, when attempting to decipher the correlation between inflation and economic activity. contributes to the larger discussion of inflation dynamics in developing economies and provides policy recommendations for controlling inflation expectations within the specific framework of India's economy. the necessity of doing additional studies to address the unique difficulties faced by developing nations by enhancing the NKPC model.