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Understanding Fluctuation: A Demand and Supply Side Perspectives

Understanding Fluctuation: A Demand and Supply Side Perspectives. Nilanjan Banik, PhD Associate Professor Center for Advanced Financial Studies Institute for Financial Management and Research. Full Employment Level of Output Versus Actual Output. GDP. Full Employment Level of Output.

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Understanding Fluctuation: A Demand and Supply Side Perspectives

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  1. Understanding Fluctuation: A Demand and Supply Side Perspectives Nilanjan Banik, PhD Associate Professor Center for Advanced Financial Studies Institute for Financial Management and Research

  2. Full Employment Level of Output Versus Actual Output GDP Full Employment Level of Output Peak Peak Actual Level of Output Recession Time

  3. Growth Versus Development • Growth is a uni-variate concept and measured as growth rate of per capita real GDP. • Development is a multivariate concept; essentially taking into account per capita GDP; mortality rate and literacy rate.

  4. GDP per capita, going by PPP (US $) Source: WDI Online Database

  5. Development Indicators Source: Economic Survey 2006-2007; National Institute of Rural Development. ' At 1993-1994 prices; !In 1999-2000 base year prices; * Figures for the year 1999-2000.

  6. Sectoral Shares of GDP Source: Reserve Bank of India and CSO ! Percentage growth during that particular fiscal

  7. Capital Formation and Employment Share Source: Reserve Bank of India (2006); CSO (2006); NSSO (2006).

  8. Growth and Volatility Source: National Account Statistics

  9. Factor productivity Source: Bosworth, Collins and Virmani (2006). During 1993-99, output per worker in the services sector grew at a rate of 7 percent Output per worker in the manufacturing sector grew at a rate 4.5 percent Output per worker in the agricultural sector grew at a rate of 2.4 percent

  10. Profits and Sensex Source: Joshua Felman, International Monetary Fund

  11. Some Facts • “Among wage and salary earners the top 20 per cent of the population in urban India earns 56 per cent of the income while the bottom 20 per cent earns barely 3.4 per cent of the income” – pp.42 • “Indeed the top 20 per cent earns more than all other put together” – pp.43 Source: India Today, September 18-24, 2007; NSSO – 2004-2005.

  12. Data and Methodology • Decompose agricultural, manufacturing and services, components of GDP into trend component and cyclical component. • It is a bi-variate model; with rainfall and individual GDP components - agriculture, manufacturing or services, all at the State level. • Trend component generally represents supply side whereas cyclical component generally represents demand side components. • Blanchard - Quah decomposition techniques is used for identifying demand and supply side shocks.

  13. Results • Supply side disturbances contribute most to fluctuation in agricultural output and least to fluctuation in services sector output. • Demand side disturbances mostly affect manufacturing output. Services output again are least affected. • Fluctuations are measured at a lag length of four quarters.

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