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In search of the Phillips curve for India

  • Paul, Biru Paksha
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    The economics literature suggests that the Phillips curve is nonexistent in India. This study finds that supply shocks, namely droughts and oil crises, and the liberalization-policy shock of the early 1990s are the main reasons for the absence of the Phillips curve in India. Once I account for these shocks by reconstructing the data of inflation and the output gap in crop year instead of fiscal year, and move to the industrial sector, the Phillips curve emerges in the conventional fashion. Thus, the short-run tradeoff between inflation and industrial output is still possible in India, as it is in other developed economies.

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    File URL: http://www.sciencedirect.com/science/article/B6W53-4W6Y81R-1/2/0abd2a31b711690c65f619bbf6041440
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    Article provided by Elsevier in its journal Journal of Asian Economics.

    Volume (Year): 20 (2009)
    Issue (Month): 4 (September)
    Pages: 479-488

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    Handle: RePEc:eee:asieco:v:20:y:2009:i:4:p:479-488
    Contact details of provider: Web page: http://www.elsevier.com/locate/asieco

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    1. David Gruen & Adrian Pagan & Christopher Thompson, 1999. "The Phillips Curve in Australia," RBA Research Discussion Papers rdp1999-01, Reserve Bank of Australia.
    2. Jeremy Rudd & Karl Whelan, 2003. "Can rational expectations sticky-price models explain inflation dynamics?," Finance and Economics Discussion Series 2003-46, Board of Governors of the Federal Reserve System (U.S.).
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    9. Makin, John H, 1982. "Anticipated Money, Inflation Uncertainty and Real Economic Activity," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 126-34, February.
    10. Sbordone, A.M., 1998. "Prices and Unit Labor Costs: a New Test of Price Stickiness," Papers 653, Stockholm - International Economic Studies.
    11. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
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    13. Gordon, Robert J, 1977. "The Theory of Domestic Inflation," American Economic Review, American Economic Association, vol. 67(1), pages 128-34, February.
    14. Pami Dua & Anirvan Banerji, 2001. "An Indicator Approach to Business and Growth Rate Cycles: The Case of India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 36(1), pages 55-78, January.
    15. Ghani, Ejaz, 1991. "Rational expectations and price behavior : A study of India," Journal of Development Economics, Elsevier, vol. 36(2), pages 295-311, October.
    16. Scheibe, Jörg & Vines, David, 2005. "A Phillips Curve for China," CEPR Discussion Papers 4957, C.E.P.R. Discussion Papers.
    17. Robert J. Gordon, 1975. "Alternative Responses of Policy to External Supply Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(1), pages 183-206.
    18. Ramachandran, M., 2004. "Do broad money, output, and prices stand for a stable relationship in India?," Journal of Policy Modeling, Elsevier, vol. 26(8-9), pages 983-1001, December.
    19. Ravi Balakrishnan & J David Lopez-Salido, 2002. "Understanding UK inflation: the role of openness," Bank of England working papers 164, Bank of England.
    20. Dutta Roy, Sudipta & Darbha, Gangadhar, 2000. "Dynamics of money, output and price interaction -- some Indian evidence," Economic Modelling, Elsevier, vol. 17(4), pages 559-588, December.
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