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The stability of the Phillips curve in India: Does the Lucas critique apply?


  • Mazumder, Sandeep


The overwhelming majority of the literature that has attempted to estimate a Phillips curve for India has found that the model does not fit the data, with the notable exception of Paul (2009). However, this paper argues that the Indian Phillips curve can be estimated using standard econometric techniques, as opposed to several special adjustments that are required in Paul (2009)’s work. Once we establish the existence of the Phillips curve in India, we examine whether the Lucas critique applies to the behavior of the model under different Reserve Bank of India (RBI) Governors. We find that there is little-to-no evidence for structural change in the model between successive RBI Governors. Hence the results demonstrate that the Phillips curve is alive and well in India, and that the Lucas critique does not apply empirically to Indian inflation–output data.

Suggested Citation

  • Mazumder, Sandeep, 2011. "The stability of the Phillips curve in India: Does the Lucas critique apply?," Journal of Asian Economics, Elsevier, vol. 22(6), pages 528-539.
  • Handle: RePEc:eee:asieco:v:22:y:2011:i:6:p:528-539 DOI: 10.1016/j.asieco.2011.05.002

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    References listed on IDEAS

    1. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," NBER Working Papers 8421, National Bureau of Economic Research, Inc.
    2. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    3. Tim Callen & Dongkoo Chang, 1999. "Modeling and Forecasting Inflation in India," IMF Working Papers 99/119, International Monetary Fund.
    4. Blanchard, Olivier J, 1984. "The Lucas Critique and the Volcker Deflation," American Economic Review, American Economic Association, vol. 74(2), pages 211-215, May.
    5. Paul, Biru Paksha, 2009. "In search of the Phillips curve for India," Journal of Asian Economics, Elsevier, vol. 20(4), pages 479-488, September.
    6. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
    7. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    8. Ghani, Ejaz, 1991. "Rational expectations and price behavior : A study of India," Journal of Development Economics, Elsevier, vol. 36(2), pages 295-311, October.
    9. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
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    Cited by:

    1. Kapur, Muneesh & Behera, Harendra, 2012. "Monetary Transmission Mechanism in India: A Quarterly Model," MPRA Paper 70631, University Library of Munich, Germany.
    2. Laurence Ball & Anusha Chari & Prachi Mishra, 2016. "Understanding Inflation in India," NBER Working Papers 22948, National Bureau of Economic Research, Inc.
    3. Jagadish Prasad Sahu, 2013. "Inflation dynamics in India: A hybrid New Keynesian Phillips Curve approach," Economics Bulletin, AccessEcon, vol. 33(4), pages 2634-2647.
    4. Kapur, Muneesh, 2013. "Revisiting the Phillips curve for India and inflation forecasting," Journal of Asian Economics, Elsevier, vol. 25(C), pages 17-27.
    5. Biswajit Maitra, 2016. "Inflation Dynamics in India: Relative Role of Structural and Monetary Factors," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(2), pages 237-255, December.
    6. Sunil Paul & Sartaj Rasool Rather & M. Ramachandran, 2015. "Money and Inflation: Evidence from P-Star Model," Working Papers 2015-115, Madras School of Economics,Chennai,India.
    7. Malikane, Christopher, 2014. "Traditional Inflation Dynamics," MPRA Paper 61427, University Library of Munich, Germany.

    More about this item


    Inflation; Phillips curve; Lucas critique;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development


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