The Taylor rule has been extensively used to understand the interest rate setting behaviour of central banks across the world. Recent empirical work including the simple characterisation I have presented here suggests that a Taylor-type rule could be a useful additional tool in understanding the interrelationship among growth, inflation and policy interest rate as the interest rate channel of monetary transmission strengthens.
At the same time, it should be emphasised that Taylor rule has its limitations as exclusive emphasis on interest rates with the neglect of other variables may not be optimal for an emerging market economy like India. In my presentation if I have raised more questions than provide answers, I would have succeeded in my intention.