ASARC Working Paper 2013/06 Inflation, its 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 amends the New Keynesian Phillips curve model to include inflation volatility. 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 alone (in the ECM model) and not in the other models. Major determinants of inflation volatility and expected inflation volatility are identified. To the best of our knowledge this is the first paper to augment the New Keynesian Phillips Curve to include inflation volatility. 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, 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.