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Sectoral effects of disinflation: Evidence from India

S. Raja Sethu Durai and M Ramachandran ()

Macroeconomics and Finance in Emerging Market Economies, 2013, vol. 6, issue 1, 77-87

Abstract: This paper makes an attempt to measure sacrifice ratios for the farm and non-farm sector as disinflation policy is believed to have differential impact on these sectors. Using the non-parametric approach of Ball (1994), five disinflation episodes are identified for India over the period from 1950--51 to 2009--10. These disinflations are largely due to contractionary monetary policy pursued by the Reserve Bank of India. The estimates of the sacrifice ratio and the presence of persistence and hysteresis effects indicate that disinflationary monetary policy is more harmful to output growth in the non-farm sector. In contrast, the negative sacrifice ratio in the farm sector implies that there is output gain during disinflationary periods. This output gain in the farm sector seems to have been driven by those factors which are independent of contractionary monetary shocks. These evidences also suggest that use of aggregate time series data might produce errors in the measurement of sacrifice ratios.

Date: 2013
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DOI: 10.1080/17520843.2012.728236

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