A Structural Macroeconometric Model for India

Pami Dua and Hema Kapur ()
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Hema Kapur: Hansraj College, University of Delhi

Chapter Chapter 10 in Macroeconometric Methods, 2023, pp 261-305 from Springer

Abstract: Abstract This study builds a small empirical structural macroeconometric model using quarterly data for India. The model has five sectors: real, fiscal, monetary, price and external sector and 14 behavioural equations (and five identities) which are estimated using two stage least squares from 1996 Q2 to 2010 Q4. The observations from 2011 Q1 to 2013 Q2 are used for out-of-sample forecasting performance. The model is a modified and extended version of the SMEM developed by Haque et al. (IMF Staff Papers 37:537–559, 1990) and also accommodates sectoral shifts, real and financial sector linkages and open macroeconomy linkages. Both in-sample and out-of-sample forecasting performance of the model indicate that the RMPSE for all variables is within the acceptable range. The paper also quantifies the economic impact of the following six alternative scenarios on key macroeconomic variables: tight monetary policy; fiscal profligacy; mixed liberal policy; weather shock; external price shock (hike) and a global shock. The main results of the baseline scenario and impact analysis are plausible and as expected. The weather shock has a significant but temporary effect in decreasing GDP growth rate. The external price shock has a strong adverse impact on economic activity and inflation. Amongst all, the global shock is the most severe in reducing GDP growth rate. Policy shocks/measures, such as fiscal policy in the form of higher government borrowings and spending and/or monetary policy in the form of a decline in Repo or CRR positively impact output growth.

Keywords: Macroeconometric model; Policy simulation; Propagation mechanism (search for similar items in EconPapers)
JEL-codes: E27 E44 F30 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-19-7592-9_10

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DOI: 10.1007/978-981-19-7592-9_10

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