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Industrial Pricing and Growth Fluctuations in India

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  • Goyal, Ashima

Abstract

In a simple 2 sector general equilibrium macromodel profit maximization by a representative firm leads to multiple long-run non-Walrasian equilibria with excess profits and excess capacity. The model is reduced to two non-linear differential equations. Using calibration and simulation it is shown that yearly non-agricultural price and output series for the Indian economy are reproduced along dynamic medium-run adjustment trajectories approaching one or other of the equilibria. Alternative mark-up hypotheses are tested. The simulations show that the medium-run mark-up is counter-cyclical but has little variation. This behaviour of the mark-up plays an important part in maintaining stability, and explaining the historical price and output series. The model therefore helps to provide a microfoundation for structuralist macroeconomics.

Suggested Citation

  • Goyal, Ashima, 1994. "Industrial Pricing and Growth Fluctuations in India," MPRA Paper 72157, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72157
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    Cited by:

    1. Goyal, Ashima & Dash, Shridhar, 2000. "The Money Supply Process in India: Identification, Analysis and Estimation," MPRA Paper 24632, University Library of Munich, Germany.
    2. Ashima Goyal, 1995. "The Simple Analytics of Aggregate Supply Demand and Structural Adjustment," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 30(2), pages 167-186, July.

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    More about this item

    Keywords

    Microfoundations; countercyclical mark-ups; stability;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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