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Estimating India's Fiscal Reaction Function

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  • Truong Nguyen

Abstract

In the 1970s-1980s, monetary authorities were usually more active than their fiscal counterparts. After some crises, fiscal policy is currently regaining its role in implementing economic policies. As a sequel to estimating the Indian monetary reaction function, this paper models and estimates a fiscal reaction function for India as a part of a macro model for India. Unlike other papers about fiscal reaction func tions which are mainly empirical-based, this paper first establishes the theoretical foundations for the empirical estimation. In estimating India's fiscal reaction function, data stationary problems are found and unbalanced regressions are employed. This paper finds that India's fiscal policy depends on debt, output gap, and interest rate levels. Apart from debt and output gap which were mentioned in other papers, the interest rate is the new element in the function and should be important in any borrowing action. The estimated fiscal reaction function tracks the actual reaction function very closely.

Suggested Citation

  • Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers 2013-05, The Australian National University, Australia South Asia Research Centre.
    • Handle: RePEc:pas:asarcc:2013-05
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    File URL: https://crawford.anu.edu.au/acde/asarc/pdf/papers/2013/WP2013_05.pdf
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    Cited by:

    1. Aura Gabriela SOCOL & Roxana Mirela FERARU, 2017. "The role of fiscal policy in the financial crisis. Challenges and solutions," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(611), S), pages 5-20, Summer.
    2. Yu HSING, 2017. "Is more government debt or currency depreciation expansionary? The case of Poland," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(612), A), pages 63-70, Autumn.

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    More about this item

    Keywords

    India's fiscal reaction function; ARDL model; unbalanced regression;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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