Quarterly Forecasting Model for India’s Economic Growth: Bayesian Vector Autoregression Approach

47 Pages Posted: 21 Mar 2019

See all articles by Tara Iyer

Tara Iyer

Asian Development Bank

Abhijit Sen Gupta

Asian Development Bank

Date Written: March 14, 2019

Abstract

This study develops a framework to forecast India’s gross domestic product growth on a quarterly frequency from 2004 to 2018. The models, which are based on real and monetary sector descriptions of the Indian economy, are estimated using Bayesian vector autoregression (BVAR) techniques. The real sector groups of variables include domestic aggregate demand indicators and foreign variables, while the monetary sector groups specify the underlying inflationary process in terms of the consumer price index (CPI) versus the wholesale price index given India’s recent monetary policy regime switch to CPI inflation targeting. The predictive ability of over 3,000 BVAR models is assessed through a set of forecast evaluation statistics and compared with the forecasting accuracy of alternate econometric models including unrestricted and structural VARs. Key findings include that capital flows to India and CPI inflation have high informational content for India’s GDP growth. The results of this study provide suggestive evidence that quarterly BVAR models of Indian growth have high predictive ability.

Keywords: Bayesian vector autoregressions, GDP growth, India, time series forecasting

JEL Classification: C11, C32, C53, F43

Suggested Citation

Iyer, Tara and Gupta, Abhijit Sen, Quarterly Forecasting Model for India’s Economic Growth: Bayesian Vector Autoregression Approach (March 14, 2019). Asian Development Bank Economics Working Paper Series No. 573 (2019). Available at SSRN: https://ssrn.com/abstract=3357278 or http://dx.doi.org/10.2139/ssrn.3357278

Tara Iyer

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Abhijit Sen Gupta (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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