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Why is it important?
Whether there is a trade-off between output and prices (inflation) is critical for the effectiveness of counter-cyclical monetary and fiscal policies. If there is no such a trade-off, expansionary monetary and fiscal policies could keep on pushing output and growth up without much fear of an attendant inflation. If there is such a trade-off, however, output gains through expansionary monetary and fiscal policies would also have a cost in terms of higher inflation. This paper, therefore, for the first time for India provided empirical evidence on such a trade-off in the country's industrial sector.
Perspectives
The paper had a major policy implication for economic stabilization policies in India. By offering new empirical evidence through an econometric model of price setting in Indian industry, it made a substantial contribution to understanding the constraints on stabilization policy in a large developing economy - India. Indeed, the analytical approach of the paper - in which the mark-up rate and the speed with which t adjusted to demand pressure was applicable to most other developing more generally.
Dr srinivasa madhur
Ministry of Economy and Finance
Read the Original
This page is a summary of: Price setting in Indian industry, Journal of Development Economics, March 1986, Elsevier,
DOI: 10.1016/0304-3878(86)90021-0.
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