Munich Personal RePEc Archive

Identifying long run supply curve of India

Goyal, Ashima and Pujari, Ayan Kumar (2005): Identifying long run supply curve of India. Published in: Journal of Quantitative Economics , Vol. Volume, No. New Series , No. 2 (July 2005): pp. 1-15.

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Identifications of a vertical 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) model. 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 frequent 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.

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