Identifying Long Run Supply Curve in India

19 Pages Posted: 26 Oct 2004

See all articles by Ashima Goyal

Ashima Goyal

Indira Gandhi Institute of Development Research (IGIDR)

Ayan Kumar Pujari

Indira Gandhi Institute of Development Research (IGIDR)

Date Written: October 9, 2004

Abstract

Identifications of a vertical and 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). 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 large 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 Long-Run Supply Curve, Demand and Supply Shocks, Structural VAR, Identification, Historical Decomposition

JEL Classification: C32, E31, E32

Suggested Citation

Goyal, Ashima and Pujari, Ayan Kumar, Identifying Long Run Supply Curve in India (October 9, 2004). Available at SSRN: https://ssrn.com/abstract=609323 or http://dx.doi.org/10.2139/ssrn.609323

Ashima Goyal (Contact Author)

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
+91 22 28400920 (Phone)
+91 22 28402752 (Fax)

HOME PAGE: http://www.igidr.ac.in/~ashima

Ayan Kumar Pujari

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
+91 98 924 27401 (Phone)

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