A basic two-sector new Keynesian DSGE model of the Indian economy

Kumar, Anshul (2023): A basic two-sector new Keynesian DSGE model of the Indian economy.

Abstract

Indian economy is going through underlying changes in post-pandemic recovery process. Effect of policies, monetary or fiscal, on macroeconomy needs a thorough analysis in these recessionary times. In this context, this study develops a closed-economy DSGE model to see the impact of monetary policy on the Indian economy. The model includes price rigidities, and parameters are calibrated using the data on the Indian economy. The model includes two sectors - production and consumption, and an inflation-targeting regime following the Taylor rule. The model is simulated for a positive productivity shock and an expansionary monetary policy shock. Results show that a positive productivity shock improves economic activity, and an expansionary monetary policy shock increases output for the short term only.

• Item Type: MPRA Paper
• Language: English
• Keywords: DSGE models; New-Keynesian; monetary policy; general equilibrium; Indian economy; calibration
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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