Separating shocks from cyclicality in Indian aggregate supply

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dc.contributor.author Goyal, Ashima
dc.contributor.author Tripathi, Shruti
dc.date.accessioned 2015-12-01T12:10:02Z
dc.date.available 2015-12-01T12:10:02Z
dc.date.issued 2015-03
dc.identifier.uri http://hdl.handle.net/2275/354
dc.description.abstract Simultaneity issues as well as incorrect measurement of shocks and of the cyclical variable bias estimated slopes of the Indian aggregate supply curve (AS). Our initial Generalized Method of Moments estimation, based on a filtered output gap variable and including supply shocks, also gives an unrealistic downward sloping AS. But we find measures of asymmetries in price changes outperform traditional measures of supply shocks. Estimation using marginal costs as a proxy for the output gap gives a positive coefficient that reduces in size on including our comprehensive supply shock variable, implying the correct AS has a small positive slope, but is subject to multiple shifts. The semi-structural specification, closer to firms' actual decisions, gives estimates of structural parameters such as degree of price stickiness and extent of forward-looking price adjustment. The results more correctly separate shocks from cyclicality, help to interpret India's growth and inflation experience, and have implications for policy. en_US
dc.language.iso en en_US
dc.relation.ispartofseries WP;WP-2015-006
dc.subject Indian aggregate supply en_US
dc.subject slope en_US
dc.subject shocks en_US
dc.subject firms' price-setting en_US
dc.subject marginal costs en_US
dc.title Separating shocks from cyclicality in Indian aggregate supply en_US
dc.type Working Paper en_US

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