Demonetization and Policy Credibility: Does India Pass Muster?

Authors

DOI:

https://doi.org/10.55763/ippr.2022.03.01.002

Abstract

This paper examines India's demonetization from the standpoint of policy credibility, employing the standard norms for assessing macroeconomic policies. The credibility appraisal constructs a narrative from contemporaneous economic records, computes the f iscal and quasi-f iscal bailout costs for mitigation, monetary costs of implementation, as well as effects upon the financial sector using public data and other empirical evidence. It considers counterfactual policy tools to examine if demonetization objectives could have been more effectively achieved at lesser costs. Based upon these comprehensive measures, the paper concludes that demonetization does not meet the established principles of credibility in the macroeconomic literature.

Keywords:

Demonetization, Policy Credibility, Macroeconomics Policy, Monetary Policy, Fiscal Policy

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Author Bio

Renu Kohli

Renu Kohli is an independent economist, previously with the Indian Council for Research on International Economic Relations, International Monetary Fund, and Reserve Bank of India.

Published

2022-01-14