Revisiting the Empirical Existence of the Phillips Curve for India

Abstract:     
This paper revisits the empirical existence of the Phillips curve in the Indian context. To estimate the Phillips curve we need two variables – inflation and the output gap. In the case of India, incorrect measurement of both variables causes much difficulty in estimating the Phillipscurve. We use a non-linear Kalman filter approach to estimate the output gap and find that the Kalman filter estimate captures all the dynamics of the economy. Our results show that after taking supply shocks into consideration, there is clear evidence as to the existence of the Phillips curve in India for recent years.

Number of Pages in PDF File: 20

Keywords: Kalman filter, output gap, inflation

JEL Classification: C32, E31, E50

working papers series