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Industrial Pricing and Growth Fluctuations in India

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  • Goyal, Ashima

Abstract

In a simple 2 sector general equilibrium macromodel profit maximization by a representative firm leads to multiple long-run non-Walrasian equilibria with excess profits and excess capacity. The model is reduced to two non-linear differential equations. Using calibration and simulation it is shown that yearly non-agricultural price and output series for the Indian economy are reproduced along dynamic medium-run adjustment trajectories approaching one or other of the equilibria. Alternative mark-up hypotheses are tested. The simulations show that the medium-run mark-up is counter-cyclical but has little variation. This behaviour of the mark-up plays an important part in maintaining stability, and explaining the historical price and output series. The model therefore helps to provide a microfoundation for structuralist macroeconomics.

Suggested Citation

  • Goyal, Ashima, 1994. "Industrial Pricing and Growth Fluctuations in India," MPRA Paper 72157, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72157
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    Cited by:

    1. Ashima Goyal, 1995. "The Simple Analytics of Aggregate Supply Demand and Structural Adjustment," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 30(2), pages 167-186, July.
    2. Goyal, Ashima & Dash, Shridhar, 2000. "The Money Supply Process in India: Identification, Analysis and Estimation," MPRA Paper 24632, University Library of Munich, Germany.

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    More about this item

    Keywords

    Microfoundations; countercyclical mark-ups; stability;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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