ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Rajeev JainSubscribe to Rajeev Jain

Vulnerability of Emerging Market Economies to Exogenous Shocks

The transmission of global demand, oil supply and monetary policy shocks on the Indian economy are empirically examined using a parsimonious structural vector autoregression model for the period 1996 to 2016. Global demand shocks exert the most dominant effect causing fluctuations in various macroeconomic variables, whereas global monetary policy spillovers play an important role in affecting domestic short-term interest rates and financial asset prices. Global oil supply shocks, given its relative weightage as an intermediate input, have a greater impact on wholesale price index inflation than on consumer price index inflation. Given the rising trade and financial integration of the Indian economy, a quantitative impact analysis of these global shocks assumes importance for macroeconomic and monetary policy frameworks.

India's Potential Economic Growth

This paper provides estimates of the potential growth rate for India by adopting alternative approaches of statistical trend filtering techniques and a production function. The Hodrick-Prescott filtering technique leads to estimated potential GDP growth of about 7 per cent. The warranted growth rate hovers around 8 per cent for the more recent period. The multivariate production function framework yields a potential growth of 6.6 per cent, which could be an underestimate given the data limitations. From the policy perspective, changes in policy instruments are linked to measures of output and the inflation gap within the framework of a policy reaction function. Empirical results showed that policy actions have significant association with output gap and inflation gap.
Back to Top