Archive for August 29th, 2012

Curious contrast of public policies between Germany and the US

August 29, 2012

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Deriving India’s Potential Growth from Theory and Structure

August 29, 2012

Ashima Goyal and Sanchit Arora of IGIDR reflect on India’s potential growth.

The paper looks at potential growth via aggregate supply function. It says India’s aggregate supply curve is elastic but subject to upward shocks. If the shocks lead to inflation in the second round, it indicates that growth is above potential. Given this empirical relationship it tests potential growth in 2007-08 and 2010-11 periods when there was upward supply shock to inflation. In first phase it seems growth had hit above potential. This is not the case in 2010-11 phase. Further, they hint that policy rates were tightened more than needed:

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