An Estimated DSGE Model of the Indian Economy

Vasco Gabriel, Paul Levine (), Joseph Pearlman and Bo Yang

No 29/2010, NIPE Working Papers from NIPE - Universidade do Minho

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.

Keywords: Indian economy; DSGE model; Bayesian estimation; monetary interest rate rules; financial frictions. (search for similar items in EconPapers)
JEL-codes: E37 E52 E58 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (39)

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Related works:
Working Paper: An Estimated DSGE Model of the Indian Economy (2011)
Working Paper: An Estimated DSGE Model of the Indian Economy (2010)
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