A New Keynesian model estimated for India yields valuable insights. Aggregate demand reacts to interest rate changes … with a lag of at least three quarters, with inflation taking seven quarters to respond. Inflation is inertial and … persistent when it sets in, irrespective of the source. Exchange rate pass-through to domestic inflation is low. Inflation turns …

unified treatment of monetary policy transmission and exchangerate pass-through. The results for an emerging market, India …, suggest that the most effective mechanism through which monetary policy impacts inflation runs through the exchange rate …