A dynamic macroeconometric model for short-run stabilization in India
A small macroeconometric model examining the determinants of India’s trade and inflation is developed to address the effects of a reform policy package similar to those implemented in 1991. This is different from the previous studies in two important respects. First, inflation has been modelled in an open economy context, and second, the non-stationarity of the data into the model and estimation procedures has been explicitly incorporated, suggesting that the stationarity assumption in earlier studies may be a source of misspecification. The model in this paper has been estimated using data from 1950 to 1995 employing fully modified Phillips–Hansen method of estimation to obtain the cointegrating relations and the short-run dynamic model. Policy simulations using dynamic simulation method compare the responses to devaluation with the responses to tight credit policy. It is shown that the trade balance effects of tight credit policy are more enduring than that of devaluation. The simulations demonstrate that the devaluation actually worsens trade balance and hence devaluation cannot be an option in response to a negative trade shock, whereas the reduction in domestic credit reflecting demand contraction produces a desirable improvement in the trade balance.
Year of publication: |
2004
|
---|---|
Authors: | Mallick, Sushanta K. |
Publisher: |
Taylor and Francis |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Modelling macroeconomic adjustment with growth in developing economies : the case of India
Mallick, Sushanta K., (1999)
-
Identifying sources of macroeconomic and exchange rate fluctuations in the UK
Cover, James P., (2012)
-
Macroeconomic policy coordination in the global economy: VAR and BVAR-DSGE analyses
Bhattarai, Keshab, (2015)
- More ...