Advertisement

Aggregate Fluctuations and Technological Shocks: The Indian Case

Chapter
  • 227 Downloads

Abstract

This study is one among the few attempts to link aggregate fluctuations with productivity and technical efficiency using the data of the Indian industrial sector. In doing so, this study uses firm-level data from the CMIE Prowess and macroeconomic indicators of Indian economy from various government databases. We estimate productivity and technical efficiency using the standard econometric approach. Further, a structural vector error correction (SVEC) model is employed to understand the importance of technological shocks in explaining the aggregate fluctuations. The result without ambiguity indicates that the percentage of variance explained by aggregate demand shocks is larger at lower lag and decreasing. However, the share of technology shock shows an increasing trend over the period of time. Therefore, the aggregate demand shock and the technology shock have conflicting impact as far as aggregate output fluctuations are concerned. The results are similar when we substitute TFP with TE. The findings in general indicate the transitory nature of aggregate demand shocks compared to technology shocks.

Keywords

Business cycles Technology shocks Structural vector error correction models 

JEL Classification

E2 E3 E32 

Notes

Acknowledgements

This is a modified and updated version of our earlier paper presented during the “Silver Jubilee Seminar of Madras School of Economics” jointly organised by Forum of Global Knowledge Sharing (Knowledge Forum) during August 11, 2018. We would like to thank the participants of the seminar for constructive comments and suggestions during the presentation. Usual disclaimer applies.

References

  1. Acemoglu, D., Carvalho, V. M., Ozdaglar, A., & Tahbaz-Salehi, A. (2012). The network origins of aggregate fluctuations. Econometrica, 80(5), 1977–2016.CrossRefGoogle Scholar
  2. Ackerberg, D. A., Caves, K., & Frazer, G. (2015). Identification properties of recent production function estimators. Econometrica, 83(6), 2411–2451.CrossRefGoogle Scholar
  3. Aghion, P., & Jaravel, X. (2015). Knowledge spillovers, innovation and growth. The Economic Journal, 125(583), 533–573.CrossRefGoogle Scholar
  4. Akcigit, U., & Kerr, W. R. (2018). Growth through heterogeneous innovations. Journal of Political Economy, 126(4), 1374–1443.CrossRefGoogle Scholar
  5. Banerjee, S., & Basu, P. (2017). Technology shocks and business cycles in India. Macroeconomic Dynamics, pp. 1–36.Google Scholar
  6. Basu, S., Fernald, J. G., & Kimball, M. S. (2006). Are technology improvements contractionary? American Economic Review, 96(5), 1418–1448.CrossRefGoogle Scholar
  7. Beaudry, P., & Portier, F. (2006). Stock prices, news, and economic fluctuations. American Economic Review, 96(4), 1293–1307.CrossRefGoogle Scholar
  8. Bhattacharya, R., Patnaik, M. I., & Pundit, M. (2013). Emerging economy business cycles: Financial integration and terms of trade shocks (No. 13–119). International Monetary Fund.Google Scholar
  9. Blanchard, O. J., & Quah, D. (1988). The dynamic effects of aggregate demand and supply disturbances.Google Scholar
  10. Chitre, V. S. (1982). Growth cycles in the Indian economy. Pune: Gokhale Institute of Politics and Economics.CrossRefGoogle Scholar
  11. Cochrane, J. H. (1994). Permanent and transitory components of GNP and stock prices. The Quarterly Journal of Economics, 109(1), 241–265.CrossRefGoogle Scholar
  12. Coelli, T. J. (1996). A guide to FRONTIER version 4.1: A computer program for stochastic frontier production and cost function estimation (Vol. 7, pp. 1–33). CEPA Working papers.Google Scholar
  13. Cooley, T. F., & Prescott, E. C. (1995). Economic growth and business cycles. Frontiers of business cycle research, Vol. 1.Google Scholar
  14. Dua, P., & Banerji, A. (2012). Business and growth rate cycles in India (No. 210).Google Scholar
  15. Fisher, J. D. (2006). The dynamic effects of neutral and investment-specific technology shocks. Journal of Political Economy, 114(3), 413–451.CrossRefGoogle Scholar
  16. Gabaix, X. (2011). The granular origins of aggregate fluctuations. Econometrica, 79(3), 733–772.CrossRefGoogle Scholar
  17. Gali, J. (1999). Technology, employment, and the business cycle: Do technology shocks explain aggregate fluctuations? American Economic Review, 89(1), 249–271.CrossRefGoogle Scholar
  18. Ghate, C., Gopalakrishnan, P., & Tarafdar, S. (2016). Fiscal policy in an emerging market business cycle model. The Journal of Economic Asymmetries, 14, 52–77.CrossRefGoogle Scholar
  19. Ghate, C., Pandey, R., & Patnaik, I. (2013). Has India emerged? Business cycle stylized facts from a transitioning economy. Structural Change and Economic Dynamics, 24, 157–172.CrossRefGoogle Scholar
  20. Goldar, B., Renganathan, V. S., & Banga, R. (2004). Ownership and efficiency in engineering firms: 1990-91 to 1999-2000. Economic and Political Weekly, pp. 441–447.Google Scholar
  21. Greenwood, J., & Smith, B. D. (1997). Financial markets in development, and the development of financial markets. Journal of Economic dynamics and control, 21(1), 145–181.CrossRefGoogle Scholar
  22. Justiniano, A., Primiceri, G. E., & Tambalotti, A. (2010). Investment shocks and business cycles. Journal of Monetary Economics, 57(2), 132–145.CrossRefGoogle Scholar
  23. King, R. G., & Rebelo, S. T. (1999). Resuscitating real business cycles. Handbook of Macroeconomics, 1, 927–1007.CrossRefGoogle Scholar
  24. Kydland, F. E., & Prescott, E. C. (1982). Time to build and aggregate fluctuations. Econometrica: Journal of the Econometric Society, pp. 1345–1370.Google Scholar
  25. Long, J. B., Jr., & Plosser, C. I. (1983). Real business cycles. Journal of Political Economy, 91(1), 39–69.CrossRefGoogle Scholar
  26. Lucas, R. (1977). Understanding business cycles. In Carnegie-Rochester conference series on public policy (Vol. 5, No. 1, pp. 7–29). Elsevier.Google Scholar
  27. Lütkepohl, H. (2005). New introduction to multiple time series analysis. Springer Science & Business Media.Google Scholar
  28. Schumpeter, J. A. (1939). A theoretical, historical and statistical analysis of the Capitalist process. In Business cycles. New York, Toronto, London: McGraw-Hill.Google Scholar
  29. Schumpeter, J. A. (2010). Capitalism, socialism and democracy. Routledge.Google Scholar
  30. Shapiro, M. D., & Watson, M. W. (1988). Sources of business cycle fluctuations. NBER Macroeconomics Annual, 3, 111–148.CrossRefGoogle Scholar
  31. Sims, C. A. (1980). Macroeconomics and reality. Econometrica: Journal of the Econometric Society, pp. 1–48.Google Scholar

Copyright information

© Springer Nature Singapore Pte Ltd. 2020

Authors and Affiliations

  1. 1.School of Humanities and Social SciencesIIT GoaPondaIndia
  2. 2.Department of Humanities and Social SciencesIndian Institute of Technology MadrasChennaiIndia

Personalised recommendations