Skip to main content
Article thumbnail
Location of Repository

A dynamic macroeconometric model for short-run sabilisation in India

By Sushanta K. Mallick


This paper presents a small macroeconometric model examining the determinants of Indian trade and inflation to address the effects of a reform policy package similar to those implemented in 1991. This is different from previous studies along one important dimension that we explicitly incorporate the non-stationarity of the data into our model and estimation procedures, which suggest that the stationarity assumption may be a source of misspecification in previous work. So the model has been estimated using the data from 1950 to 1995 employing fully-modified Phillips-Hansen Method of estimation to obtain the cointegrating relations and short-run dynamic model. Policy simulations using dynamic simulations method compare the dynamic 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 those of devaluation. The simulations demonstrate that the devaluation has actually worsened the trade balance and hence devaluation is not an option in response to a negative trade shock, whereas the reduction in domestic credit produces a desirable improvement in the trade balance

Topics: HC, DS
Publisher: University of Warwick, Department of Economics
Year: 1998
OAI identifier:

Suggested articles


  1. (1994). A Model of Balance of Payments: Some Policy Simulations for India,
  2. (1992). A Respecification of the Export Demand and Supply Functions for India,
  3. (1994). A Structural Model of Trade and Inflation: Exchange Rate and Credit Policy Effects on Indian Economy,
  4. (1996). An Aggregate Import Demand Function for India, doi
  5. (1994). An Analysis of UK Imports using Multivariate Cointegration, doi
  6. (1987). Cointegration and Error Correction: Representation, doi
  7. (1993). Comparing Macroeconometric Models: A Review Article, doi
  8. (1989). Data on Net National Product at market prices (constant prices with respect to base 1980-81 = 100) are taken from from NAS-New Series,
  9. (1988). Demand for India’s Manufactured Exports, doi
  10. (1995). Dynamic Econometrics, doi
  11. (1992). Effects of Monetary and Import Price Changes on the Dynamics of Inflation in Six Asian Countries,
  12. (1991). Exchange Rate of Indian Rupee - (a) Report on Currency doi
  13. (1986). Exchange Rate Versus Credit Policy: Analysis with a Monetary Model of Trade and Inflation in India,
  14. (1990). Exports and Imports - (a) Foreign Trade Statistics, Directorate General of Commercial Intelligence and Statistics
  15. (1997). for Windows, doi
  16. (1996). India: Five Years of Stabilization and Reform and the Challenges Ahead, The World Bank, doi
  17. (1994). India: Macroeconomics and Political Economy, 1964-1991, The World doi
  18. (1990). Inflation in India: An Analytical Survey,
  19. (1997). Inflation, Exchange and Interest Rates: A Macroeconomic Rashomon,
  20. (1985). International Prices, Wages and Inflation in an Open Economy: A Chilean Model, doi
  21. (1995). Macroeconomic Adjustment in India: Policy and Performance in the Recent Years,
  22. (1995). Macroeconomics of Stabilisation and Adjustment: The Indian Case,
  23. (1997). Monetary Economics: An Econometric Investigation,
  24. (1989). Money, Prices and Stabilization Policies in Some Developing Countries, doi
  25. (1980). Open Economy Macroeconomics, Basic Books, doi
  26. (1991). Pricing and Inflation in India,
  27. (1991). Rational Expectations and Price Behavior: A Study of India, doi
  28. (1974). Spurious Regressions in Econometrics, doi
  29. (1995). The Determination of Industrial Prices in India: A PostKeynesian Approach,
  30. (1995). The Simple Analytics of Aggregate Supply,
  31. (1988). Transmission of International Inflation to India: A Structural Analysis,
  32. (1997). WinSolve Version 2.42: A computer package for solving nonlinear macroeconomic models,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.