Developing a Dynamic Stochastic General Equilibrium Model for the Indian Economy

Analyzing an economy's performance to explain changes is important when designing monetary and fiscal policies. This project will allow the National Council of Applied Economic Research (NCAER), a Think Tank Initiative grantee institution in India, to develop a model to analyze India's macroeconomy.

Why analyzing the economy is important
Macroeconomic analyses serve to inform policy. They bring benefits by helping to project changes that take place because of shocks to the economy caused by policy decisions or other factors.

A range of applied economic tools, such as time series models or econometric models that build on simple statistical properties, have been used to provide these types of analyses. However, there is now an increasing body of economic literature that attempts to build economic models based on a more comprehensive and theoretically consistent framework.

About the Dynamic Stochastic General Equilibrium model
The Dynamic Stochastic General Equilibrium (DSGE) modelling framework is an approach that combines a rational and dynamic view of economic agents

The DSGE framework proposed for this project will consider a prototype economy that emerges from the sum of individual choices and decisions. The key economic agents are households, firms, the government, and the central bank. All behave according to their own preferences and views about the future, subject to random shocks.

The framework provides a coherent structure to analyze economic fluctuations. In recent years, research has shown that estimated DSGE models can generate forecasts with greater accuracy in comparison to time series models. DSGE models are increasingly used in central banking.

A model for the Indian economy
This proposal seeks to develop a DSGE model for the Indian economy to complement a range of tools available at the NCAER. The model developed through this project will be a pioneering effort in India.

NCAER is planning the project in two phases:
-Phase 1: Researchers will develop a model for India based on a review of the relevant literature and consultations. They will develop a database for estimating purposes.
-Phase 2: Researchers will estimate the model, operationalize it, and validate it through alternative sets of simulations.

Project ID

107817

Project status

Closed

Start Date

Saturday, August 30, 2014

End Date

Thursday, October 30, 2014

Duration

3 months

IDRC Officer

Verma, Samar

Total funding

CA$ 40,558

Countries

India, Central Asia, Far East Asia, South Asia

Program

Think Tank Initiative

Project Leader

Dr. Shesadri Banerjee

Institution

National Council of Applied Economic Research

Institution Country

India

Institution Website

http://www.ncaer.org