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Identifying long run supply curve of India

Author

Listed:
  • Goyal, Ashima
  • Pujari, Ayan Kumar

Abstract

Identifications of a vertical then a horizontal supply curve are successively imposed on Indian time series inflation and industrial output growth data in a two-equation Structural Vector Autoregression (SVAR) model. The results provide an indirect test of the identifications. A high elasticity of long run supply cannot be ruled out, because supply shocks have a large impact on inflation and demand has a large and persistent effect on output levels. But supply is subject to frequent shocks. Estimated structural shocks capture historical recessions and turning points well. Pro-cyclical policy induced demand shocks aggravated negative supply shocks or failed to take full advantage of positive supply side developments.

Suggested Citation

  • Goyal, Ashima & Pujari, Ayan Kumar, 2005. "Identifying long run supply curve of India," MPRA Paper 24021, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24021
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    File URL: https://mpra.ub.uni-muenchen.de/24021/1/MPRA_paper_24021.pdf
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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. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    3. Hilde Christiane Bjørnland, 2001. "Identifying domestic and imported core inflation," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1819-1831.
    4. Quah, Danny, 1995. "Misinterpreting the dynamic effects of aggregate demand and supply disturbances," Economics Letters, Elsevier, vol. 49(3), pages 247-250, September.
    5. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, January.
    6. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ashima Goyal, 2014. "History of Monetary Policy in India Since Independence," SpringerBriefs in Economics, Springer, edition 127, number 978-81-322-1961-3, March.
    2. Goyal, Ashima, 2006. "Macroeconomic policy and the exchange rate: working together?," MPRA Paper 27768, University Library of Munich, Germany.
    3. Ashima Goyal, 2005. "Incentives from exchange rate regimes in an institutional context," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2005-002, Indira Gandhi Institute of Development Research, Mumbai, India.
    4. Ashima Goyal, 2005. "“Incentives from Exchange Rate Regimes in an Institutional Context"," Macroeconomics Working Papers 22370, East Asian Bureau of Economic Research.
    5. Goyal, Ashima & Tripathi, Shruti, 2015. "Separating shocks from cyclicality in Indian aggregate supply," Journal of Asian Economics, Elsevier, vol. 38(C), pages 93-103.
    6. Ashima Goyal & Bhavyaa Sharma, 2015. "Government expenditure in India: Composition, cyclicality and multipliers," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-032, Indira Gandhi Institute of Development Research, Mumbai, India.
    7. Ashima Goyal, 2010. "Inflationary pressures in South Asia," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 17(2), pages 1-42, December.
    8. Ashima Goyal, 2010. "Exchange Rate Regimes and Macroeconomic Performance in South Asia," Macroeconomics Working Papers 22779, East Asian Bureau of Economic Research.
    9. Ashima Goyal & Arjun Singh, 2006. "Through a glass darkly: Deciphering the impact of oil price shocks," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2006-012, Indira Gandhi Institute of Development Research, Mumbai, India.
    10. Mishra Ankita, 2013. "Pre-conditions for Inflation Targeting in an Emerging Economy: The Case of India," Global Economy Journal, De Gruyter, vol. 13(1), pages 89-108, January.
    11. Ashima Goyal & Abhishek Kumar, 2017. "A DSGE model-based analysis of the Indian slowdown," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-003, Indira Gandhi Institute of Development Research, Mumbai, India.
    12. Holtemöller, Oliver & Mallick, Sushanta, 2015. "Global Food Prices and Business Cycle Dynamics in an Emerging Market Economy," IWH Discussion Papers 15/2015, Halle Institute for Economic Research (IWH).
    13. Gopakumar K.U. & V. Pandit, 2014. "Price Movements For Rice And Wheat - A Structuralist Policy Perspective," Working papers 240, Centre for Development Economics, Delhi School of Economics.
    14. Holtemöller, Oliver & Mallick, Sushanta, 2016. "Global food prices and monetary policy in an emerging market economy: The case of India," Journal of Asian Economics, Elsevier, vol. 46(C), pages 56-70.
    15. 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.

    More about this item

    Keywords

    Horizontal and vertical supply curves; demand and supply shocks; Structural VAR; identification; historical decomposition.;

    JEL classification:

    • 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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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