A dissection of Indian growth using a DSGE filter
Saurabh Sharma and
Journal of Asian Economics, 2022, vol. 80, issue C
In order to build a strong and sustainable recovery post the COVID-19 pandemic, we need to draw important observations from the growth experience of the past. In this context, this paper uses a dynamic stochastic general equilibrium (DSGE) model that takes into account persistent growth rate shocks to decompose the Indian GDP into potential output and output gap. Apart from analysing the trajectory of potential output-output gap, it also examines their underlying drivers. The results suggest that a combined deceleration in neutral and investment-specific technology growth post 2016, brought down the potential growth to around 6 per cent in 2020Q1. The output gap also witnessed a persistent decline since 2018Q1, primarily due to weak demand and a rise in investment adjustment costs reflecting heightened stress in the investment and financial sectors. A forecasting exercise is also undertaken which shows that the estimates of output gap from the model possess competing inflation forecasting ability compared to HP filtered output gap.
Keywords: Potential output; Business cycle; DSGE; Bayesian estimation; Indian economy (search for similar items in EconPapers)
JEL-codes: E32 E37 O41 O47 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:80:y:2022:i:c:s1049007822000392
Access Statistics for this article
Journal of Asian Economics is currently edited by C. Wiemer
More articles in Journal of Asian Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().