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An Estimated DSGE Model of the Indian Economy

Author

Listed:
  • Vasco Gabriel

    (University of Surrey)

  • Paul Levine

    (University of Surrey)

  • Joseph Pearlman

    (London Metropolitan University)

  • Bo Yang

    (University of Surrey and London Metropolitan University)

Abstract

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.

Suggested Citation

  • Vasco Gabriel & Paul Levine & Joseph Pearlman & Bo Yang, 2010. "An Estimated DSGE Model of the Indian Economy," School of Economics Discussion Papers 1210, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:1210
    as

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    File URL: https://repec.som.surrey.ac.uk/2010/DP12-10.pdf
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    More about this item

    Keywords

    Indian economy; DSGE model; Bayesian estimation; monetary interest rate rules; financial frictions;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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