. the dilemma for monetary policy in india is thus somewhat different from that of the advanced economies. the dilemma for advanced economy central banks is whether monetary policy is having to be kept more accommodative than necessary to offset fiscal contraction. in contrast, the dilemma for the reserve bank is whether monetary policy is having to be tightened that much more because of fiscal demand. conclusion 46. in my remarks today, i have tried to present to you some of the dilemmas we confront in monetary policy management. all central banks confront these, with differences in the extent and timing. i have tried to give you the reserve bank perspective on these. the message i tried to convey is that there are no template answers to real life policy issues. analysis is important, but judgement is crucial. i believe a two way communication between central practitioners and central bank scholars will help in sharpening both our analysis and judgement.

duvvuri subbarao : monetary policy dilemmas – some reserve bank of india perspectives comments by dr duvvuri subbarao, governor of the reserve bank of india, at the stern school of business, new york university, 26 september 2011. * * * 1. i value this opportunity of speaking at the stern school to an academic community interested in central bank issues. over the last decade, the profile of central banks has gone up. first, we had the great moderation – a period of extraordinary benign macroeconomic environment globally, characterized by steady growth in advanced economies and accelerated growth in emerging economies, and low and stable inflation all around. central banks took credit for this, believed they had discovered the holy grail and declared victory. 2. that sense of triumph was dented by the crisis as central banks came to be blamed for policies and actions that got the world into the crisis. even so, central banks battled the crisis from the frontlines and regained some of the lost reputation by acting quickly, decisively, and where required in concert, to stabilize the global economy which was hurtling towards collapse. over the last few months, fears of a double - dip recession have resurfaced, and governments in advanced countries are locked in a policy logjam over the balance between short - term fiscal stimulus and long term fiscal consolidation. this has willy - nilly pushed central banks to the fore once again as monetary stimulus is having to bear the burden of being the first, and in some cases, possibly the only line of defence against recession. 3. the crisis has been an intellectual challenge in many ways. it has tested the armoury of instruments available to central banks and the limits of their policy force. it has also reopened questions that we thought had been answered and renewed debates that we thought had been settled. my own experience has been that real world problems are too complex to fit template solution of text books. i want to use this opportunity that you have provided me to communicate to you some of the complexities and dilemmas in real world policy making, and i will do so from the perspective of the reserve bank of india ( rbi ). what is the appropriate monetary policy response to complex growth - inflation dynamics? 4. india recovered from the crisis sooner than even other emerging economies, but inflation too caught up with us sooner than elsewhere. inflation, as measured by the wholesale price index ( wpi ), which actually went into negative territory for a brief period