Regime Switching Approach to Analyse Growth Cycles and Fiscal Policy

Mathew Koshy Odasseril () and K. R. Shanmugam
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Mathew Koshy Odasseril: Madras School of Economics
K. R. Shanmugam: Madras School of Economics

A chapter in India's Public Finance and Policy Challenges in the 2020s, 2025, pp 27-45 from Springer

Abstract: Abstract This study explores the nature of growth cycles in India and the fiscal policy reaction function for the period 1982 to 2022 accounting for possible regime changes due to the balance of payment crisis, the global financial and the COVID-19 crises, using the Markov regime switching model. The model has identified that the two distinct growth regimes have an average growth rate of 4.68% and 7.83%, with an average duration of 9 years and 3 years, respectively. The passive fiscal policy regime tends to be more persisting compared to the active fiscal regime in India. The findings indicate that the government’s response to the global financial crisis and the COVID-19 pandemic was countercyclical, but the fiscal policy response of the government is mostly pro-cyclical during the study period.

Keywords: Indian economy; Business cycles; Markov switching; Turning points; Fiscal policy (search for similar items in EconPapers)
JEL-codes: C22 C51 E32 E6 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-96-2860-5_3

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DOI: 10.1007/978-981-96-2860-5_3

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