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An Estimated DSGE Model of the Indian Economy

We develop a closed-economy DSGE model of the Indian economy and estimate it by Bayesian Maximum Likelihood methods using Dynare. We build up in stages to a model with a number of features important for emerging economies in general and the Indian economy in particular: a large proportion of credit-constrained consumers, a financial accelerator facing domestic firms seeking to finance their investment, and an informal sector. The simulation properties of the estimated model are examined under a generalized inflation targeting Taylor-type interest rate rule with forward and backward-looking components. We find that, in terms of model posterior probabilities and standard moments criteria, inclusion of the above financial frictions and an informal sector significantly improves the model fit.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 29/2010.

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Date of creation: 2010
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Handle: RePEc:nip:nipewp:29/2010
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Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal

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  11. Fernandez-Villaverde, Jesus & Francisco Rubio-Ramirez, Juan, 2004. "Comparing dynamic equilibrium models to data: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 123(1), pages 153-187, November.
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  19. Ferroni, Filippo, 2009. "Trend agnostic one step estimation of DSGE models," MPRA Paper 14550, University Library of Munich, Germany.
  20. Jesús Fernández-Villaverde, 2009. "The Econometrics of DSGE Models," PIER Working Paper Archive 09-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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  24. Codrina Rada, 2009. "Formal and Informal Sectors in China and India: An Accounting-Based Approach," Working Paper Series, Department of Economics, University of Utah 2009_02, University of Utah, Department of Economics.
  25. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-85, May.
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