An Estimated DSGE Model of the Indian Economy.



Shocks of the Estimated DSGE Model

Forecast
horizon

Observable
variables

Productivity
(F)

Productivity

(I)

Government
spending

Monetary
policy

Mark-up
(F)

Mark-up
(I)

Risk
premium

t=1

Inflation

0.1

7.3

7.0

74.7

0.0

0.8

10.1

Output

3.1

47.5

34.4

3.2

0.0

3.2

8.7

Interest rate

0.6

19.9

25.5

5.3

0.0

2.1

46.5

Investment

1.2

8.2

22.1

0.4

0.0

0.1

68.0

t=4

Inflation

0.2

9.0

6.9

72.7

0.0

1.1

10.1

Output

6.7

52.9

24.3

1.9

0.0

6.7

7.5

Interest rate

0.8

7.4

20.7

2.0

0.0

0.8

68.5

Investment

1.4

5.9

28.1

0.4

0.1

0.1

65.0

t=10

Inflation

0.2

9.0

6.9

72.66

0.0

1.1

10.1

Output

7.4

48.9

21.5

1.7

0.0

7.1

13.4

Interest rate

0.6

5.2

16.5

1.6

0.0

0.7

75.4

Investment

1.5

4.3

34.6

0.4

0.1

0.1

59.0

t=100

Inflation

0.2

9.0

6.9

72.7

0.0

1.1

10.1

Output

6.9

43.5

23.4

1.7

0.1

6.4

18.1

Interest rate

0.5

4.9

15.6

1.9

0.0

0.8

76.3

Investment

1.5

4.3

35.0

0.5

0.2

0.2

58.3

Table 8: Forecast Error Variance Decomposition - 2 Sector NK Model (in
Percent) ♦

♦ All the variance decomposition is computed from the model solutions (order of approximation =
1). The results are based on the models’ posterior distribution.

46



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