Article thumbnail

An Estimated DSGE Model of the Indian Economy.

By Vasco Gabriel, Paul Levine, Joseph Pearlman and Bo Yang

Abstract

We develop a closed-economy DSGE model of the Indian economy and estimate it by Bayesian Maximum Likelihood methods using Dynare. We build up in stages to a model with a number of features important for emerging economies in general and the Indian economy in particular: a large proportion of credit-constrained consumers, a financial accelerator facing domestic firms seeking to finance their investment, and an informal sector. The simulation properties of the estimated model are examined under a generalized inflation targeting Taylor-type interest rate rule with forward and backward-looking components. We find that, in terms of model posterior probabilities and standard moments criteria, inclusion of the above financial frictions and an infor- mal sector significantly improves the model fit.Indian economy ; DSGE model ; Bayesian estimation ; Monetary interest rate rules ; Financial frictions

OAI identifier:

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

Suggested articles

Citations

  1. (2008). A Contemporary Perspective on the Informal Labor Market - Theory, Policy and the Indian Experience. Mimeo, Centre for Studies in Social Science,
  2. (2010). A Floating versus Managed Exchange Rate Regime in a DSGE Model of India .
  3. (1983). A random walk, markov model for the distribution of time series.
  4. (1997). Agency costs, net worth and business cycle °uctuations: a computable general equilibrium analysis.
  5. (2010). An Estimated Model with Macro¯nancial Linkages for India.
  6. (2003). An estimated Stochastic Dynamic General Equilibrium Model of the Euro Area.
  7. (2004). Balance Sheets and Exchange Rate Policy.
  8. (2005). Business cycles in emerging economies: the role of interest rates.
  9. (1998). Capital Flows and Capital-Markets Crises.
  10. (2004). Comparing dynamic equilibrium models to data: a Bayesian approach.
  11. (1999). Computational Experiments and Reality.
  12. (1992). Current real-business-cycle theories and aggregate labor-market °uctuations.
  13. (2009). Delhi Group on Informal Sector Contribution and Present Status .
  14. (2007). Emerging Market Business Cycles: The Cycle is the Trend.
  15. (2008). Evaluating an estimated new Keynesian small open economy model.
  16. (2006). Exchange Rates and Monetary Policy in Emerging Market Economies.
  17. (2003). Financial Markets and Financial Leverage in a Two-Country WordEconomy. Central Bank of Chile Working
  18. (2009). Formal and Informal Sectors in China and India: An Accounting-Based Approach .
  19. (1998). General methods for monitoring convergence of iterative simulations.
  20. (2009). How Forward-Looking is the Fed? Direct Estimates from a `Calvo-type' rule.
  21. (2007). In°ation forecast rules and indeterminacy: a puzzle and a resolution.
  22. (2010). Informal Labour and Credit Markets: A Survey.
  23. (2000). Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts. The World Bank Economic Review,
  24. (2009). Monetary and Fiscal Rules in an Emerging Small Open Economy.
  25. (2004). Monetary Policy in Emerging Markets.
  26. (2006). Monetary Policy Under Uncertainty in Micro-Founded Macroeconomic Models.
  27. (2010). Monetary policy with a weak transmission mechanism. Working Paper, National Institute for Public Finance and Policy.
  28. (2008). New Issues in Macroeconomic Policy .
  29. (2005). Nominal rigidities and the dynamic e®ects of a shock to monetary policy.
  30. (2008). Optimal Monetary Policy under Sudden Stops. Federal Reserve Bank of New York,
  31. (2004). Rule-of-Thumb Consumers and the Design of Interest Rate Rules. NBER Working Papers 10392, National Bureau of Economic Research.
  32. (2007). Shocks and Frictions in US business cycles: A Bayesian DSGE approach.
  33. (2007). Structural Macroeconometrics.
  34. (2009). The Econometrics of DSGE Models.
  35. (2008). The Estimation of DSGE Models under Partial Information.
  36. (1999). The Financial Accelerator in Quantitative Business Cycles.
  37. (2005). The Informal Credit Market: A Study of Default and Informal Lending in Nepal. Mimeo,
  38. (2008). The Role of Trends and Detrending
  39. (1961). Theory of Probability.
  40. (2010). Trend agnostic one step estimation of DSGE models.