An Estimated DSGE Model of the Indian Economy.

defining n_k ≡ QN. Then we can set the scaling parameter k from (A.1) as

k = Θ n%

Then in the baseline steady state used to calibrate parameters, we put TV_t = n_kK_t and
calibrate D from (A.1). Then the zero-inflation steady state and the calibrated k are given
by

1 + R

Q

Y:

%C2 ,t
⁽¹ - %⁾⁽¹ - ^h)

Ci ,t
αP ^w Y_t^w
Ph

Kt

Y w

Yt

1 + Rk

Θ

It

Y:

1

Nt

(1 + g )^{1+(σ-1)(1 -}% )
β

Π = 1

(1 - c)(ht√lt)^αKt^{1 -α}

Wt

Wth

Wt

1 — α

Rk + δ

(1 + R)Θ

'=^k ' ^{v )-χ}

( δ + g ) Kt

Ct ⁺ -I ⁺ G t

1 P ^w

^1-1 ^p

_r (1 — ξe ) D t

n^{k t} (1 — ξe (1 + Rk))

B SuMMARy of Two-Sector Model

B.1 DyNAMic Model

^λi ,t

^Л C ι ,t

^Л L ι i,t

^Л C ι ,t

^л(ci,t, LiF,t^, Liɪ,t)

W^1-% )(^{1 -σ} )(_r.    τβ (^{1 -σ} ) i ∕^rι %   %τ^- (^{1 -σ} )ʌ    ∣

C1 ,t        ⁽ⁿF,tLi_F,t   ^{+ (1 - n}F,t)^L1₁,t   ) ^{- 1}

⁽¹    y∣M^{1 -}%^{)(1 -σ})^-1(∏   %^{β(1 -σ}) _i_ Λι    %,   ∖τ-^{(1 -σ})!

^{(1 -} %)C1 ,t           ⁽ⁿF,tL 1 F,t   ^{+ (1 - n}F,t)^L11,t   )

%ci 1t^-%^{)(1 -σ})(Li,t)%^{(1 -σ})^-1 ; i = I, F

βEt [⁽¹ + ^Rt₊1^)лc ₁ ,t+i]

36