Econometrics Analysis of Business Cycle in India

Abstract

Business cycles reflect the real economic picture of any economy. In the era of globalization, economic activities are highly fluctuating and different components of economy are working in different direction with varied moment and density function and ultimately it tends to disturb the growth rate. This Paper tests the growth rate of business cycles in Indian states. We have considered the non-agricultural GDP and NSDP as a measure of aggregate economic activity. This study, by applying the Hodrick-Prescott and Baxter-King filter for de-trending the growth rate series, finds that the volatility in non-agricultural GDP cycles had came down in the post liberalisation period. The rising business cycles volatility in 1990s compared to 1980s was also widely visible among regional business cycles. The view of earlier researches about Indian business cycle as "monsoon cycle” during the pre-liberalization period is also of limited relevance. Therefore, we argue that the conventional business cycle existed for the entire period of our study i.e. 1951-2010. This study also finds that the trend growth rate as well as deviation from the trend i.e. cycles is showing a downward trend in many of the states in the recent past years