Identifying long run supply curve of India

Ashima Goyal and Ayan Kumar Pujari

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Horizontal and vertical supply curves; demand and supply shocks; Structural VAR; identification; historical decomposition. (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 (search for similar items in EconPapers)
Date: 2005-07
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Citations: View citations in EconPapers (34)

Published in Journal of Quantitative Economics New Series , No. 2.Volume(2005): pp. 1-15

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