ASARC Working Paper 2012/11 Inflation Volatility and the Inflation-Growth Tradeoff in India 1 Raghbendra Jha and Varsha S. Kulkarni Australian National University Indiana University Bloomington USA ABSTRACT This paper extends the New Keynesian Phillips curve model to include inflation volatility and tests the determinants of such volatility for India. It provides results on the determinants of inflation volatility and expected inflation volatility for OLS and ARDL (1,1) models and for change in inflation volatility and change in expected inflation volatility using ECM models. Output gap affects change in expected inflation volatility (in the ECM model) and not in the other models. Major determinants of inflation volatility and expected inflation volatility are identified. Keywords: Inflation, Inflation volatility, ARDL model, ECM model, Output gap, India JEL classification: E31, E32, E42, E44 Please address all correspondence to: Prof. Raghbendra Jha, ASARC, Arndt–Corden Dept of Economics, College of Asia & the Pacific H.C. Coombs Building (09) Australian National University, Canberra, ACT 0200, Australia Phone: + 61 2 6125 2683, Fax: + 61 2 6125 0443, Email: r.jha@anu.edu.au 1 Thoughts and views sought from Raghav Gaiha and Eric Smith were helpful for this paper. We are grateful to a summer scholarship granted to Varsha S. Kulkarni by the Santa Fe Institute, where some of this work was completed.