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Through a Glass Darkly

Author

Listed:
  • Ashima Goyal

    (Ashima Goyal is Professor, Indira Gandhi Institute of Development Research, Gen Vaidya Marg, Santosh Nagar, Goregaon(E), Mumbai 400065, e-mail: ashima@igidr.ac.in)

  • Arjun Singh

    (Arjun Singh is Business Analyst, Citigroup Global Services Ltd., e-mail: arjunigidr@gmail.com)

Abstract

In order to examine if the impact of oil price shocks depends on the structure of an economy, a vertical (VSC) and a horizontal (HSC) long-run supply curve identifications are successively imposed on a three-variable structural vector autoregression (SVAR) with Indian time series data. While core inflation is measured with the VSC, the HSC requires a new concept of demand-driven inflation: residual (demand) inflation, which gives the impact of short and medium-run demand shocks on inflation. Both core and residual inflation are estimated. The data favours the HSC, but both identifications imply that policy demand squeeze aggravated international oil price shocks.

Suggested Citation

  • Ashima Goyal & Arjun Singh, 2007. "Through a Glass Darkly," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 1(2), pages 139-166, April.
    • Handle: RePEc:sae:mareco:v:1:y:2007:i:2:p:139-166
    DOI: 10.1177/097380100700100201
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    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Alain DeSerres & Alain Guay, 1995. "Selection of the Truncation Lag in Structural VARs (or VECMs) with Long-Run Restrictions," Econometrics 9510001, University Library of Munich, Germany.
    3. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    4. Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, vol. 86(Q II), pages 5-31.
    5. repec:icf:icfjmo:v:03:y:2005:i:2:p:76-90 is not listed on IDEAS
    6. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
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    Cited by:

    1. Ashima Goyal & Sanchit Arora, 2012. "Deriving India's Potential growth from theory and structure," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-018, Indira Gandhi Institute of Development Research, Mumbai, India.

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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