Mallick, Sushanta K. (1998) A dynamic macroeconometric model for short-run sabilisation in India. Working Paper. University of Warwick, Department of Economics, Coventry.

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Abstract

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.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HC Economic History and Conditions D History General and Old World > DS Asia
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Econometric models -- India, Cointegration -- India, Inflation (Finance) -- India, Devaluation of currency --India, India -- Economic conditions
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	November 1998
Number:	No.523
Number of Pages:	33
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Commonwealth Scholarship Commission in the United Kingdom (CSCUK)
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URI:	http://wrap.warwick.ac.uk/id/eprint/1656

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