An Estimated DSGE Model of the Indian Economy.



C Tables and Figures

Calibrated parameter

Symbol

Value for India

Value for US

Discount factor

β

0.9823

0.99

Depreciation rate

δ

0.025

0.025

Formal sector FA risk premium

ΘF

1.012

_

Informal sector FA risk premium

ΘI

1.06

_

Investment adjustment cost parameter

φX

2.00

2.00

Table 1: Calibrated Parameters

Parameter

Notation

Prior distribution

Posterior distribution

Density

Mean

S.D/df

NK Model<■

Risk aversion

σ

Normal

1.50

0.375

1.85

[1.31:2.33]

Calvo prices

ξ

Beta

0.50

0.10

0.67

[0.61:0.74]

Labour share

α

Normal

0.70

0.05

0.58

[0.52:0.64]

Preference parameter

%

Beta

0.50

0.15

0.79

[0.70:0.88]

Substitution elasticity (varieties)

ζ

Normal

7.00

0.50

7.17

[6.40:8.02]

Interest rate rule

Interest rate smoothing

ρ

Beta

0.75

0.10

0.60

[0.55:0.66]

Feedback from expected inflation

θ

Normal

1.50

0.25

1.44

[1.06:1.77]

Feedback from past inflation

φ

Normal

0.50

0.05

0.45

[0.37:0.53]

Degree of forward-lookingness

Ψ

Beta

0.50

0.20

0.93

[0.89:0.97]

Degree of backward-lookingness

τ

Beta

0.50

0.20

0.11

[0.02:0.19]

AR(1) coefficient
Technology

ρA

Beta

0.50

0.20

0.65

[0.43:0.85]

Government spending

ρG

Beta

0.50

0.20

0.92

[0.89:0.95]

Price mark-up

ρMS

Beta

0.50

0.20

0.92

[0.88:0.96]

Risk premium

ρRPS

Beta

0.50

0.20

0.70

[0.65:0.77]

Standard deviation of AR(1) innovations/I.I.

D. shocks

Technology

sd ( (A )

Inv. gamma

0.10

2.00

0.09

[0.02:0.15]

Government spending

sd ( (G )

Inv. gamma

0.50

2.00

3.72

[3.44:4.00]

Price mark-up

sd((M S)

Inv. gamma

1.16

2.00

1.53

[1.16:1.92]

Risk premium

sd((RP S)

Inv. gamma

0.10

2.00

2.10

[1.31:2.85]

Monetary policy

sd((MPS)

Inv. gamma

0.10

2.00

0.25

[0.22:0.28]

Price contract length

1~

1 -ξ

2.56

Table 2: Priors and Posterior Estimates - US Economy

Notes: we report posterior means and 95% probability intervals (in parentheses) based on the
output of the Metropolis-Hastings Algorithm. Sample range: 1980:I to 2006:IV.

42



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