Modeling Business Cycles in India : A Markov Switching Approach

The paper uses Markov Switching AR approach to model business cycles in Indian economy during the period 1982-2009, using quarterly data on industrial production. For the current cycle, the MS (2)-AR (4) model predicts that the probability of expansion is higher than the probability of contraction and on average the expansion regime will persist more than 13 quarters, whereas the average contraction persistence is only 4 quarters. The results also show that sub prime crisis has ended in India from 2009 quarter two. The results of the study confirm the findings of the previous studies about the dating and turning points in the Indian business cycles