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Identifying long run supply curve of India

  • Goyal, Ashima
  • Pujari, Ayan Kumar

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.

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File URL: http://mpra.ub.uni-muenchen.de/24021/1/MPRA_paper_24021.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24021.

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Date of creation: Jul 2005
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Publication status: Published in Journal of Quantitative Economics New Series , No. 2.Volume(2005): pp. 1-15
Handle: RePEc:pra:mprapa:24021
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  1. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, June.
  2. 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 655-73, September.
  3. Hilde Christiane Bj�rnland, 2001. "Identifying domestic and imported core inflation," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1819-1831.
  4. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
  5. Hilde C. Bjørnland, 2000. "Identifying Domestic and Imported Core Inflation," IMF Working Papers 00/4, International Monetary Fund.
  6. Quah, Danny, 1995. "Misinterpreting the dynamic effects of aggregate demand and supply disturbances," Economics Letters, Elsevier, vol. 49(3), pages 247-250, September.
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