Time-Varying Lags and the Evolutionary Spectrum: An Application to Monetary Policy in India

(Pages: 118-135)

D. M. Nachane1,* and R. Lakshmi2

1Indira Gandhi Institute of Development Research, Mumbai, India
2University of Mumbai, India


This paper attempts to develop an appropriate econometric methodology to test Friedman’s famous contention that monetary policy lags are both “long and variable”. The specific methodology that we advocate for analyzing monetary policy lags is based on the concept of the “evolutionary spectrum”, with the time-varying lag being calculated Via the “group delay”. An attractive feature of our methodology is the possibility of decomposing the lags frequency-wise. The methodology is applied to Indian data over the time span 1977-2013. Our analysis bears out Friedman’s original contention of monetary policy lags being “long and variable”, while also throwing light on various related issues such as the New Keynesian Phillips curve.


Monetary policy lags, financial liberalization, evolutionary spectrum, group delay, new keynesian phillips curve.