A Basic Two-Sector New Keynesian DSGE Model of the Indian Economy

Indian economy is going through underlying changes in the post-pandemic recovery process. Effects of policies, monetary or fiscal, on macroeconomy need a thorough analysis these recessionary times. In this context, study develops closed-economy DSGE model to see impact policy economy. The includes price rigidities, and parameters are calibrated using data two sectors – intermediate goods final producers, an inflation-targeting regime following Taylor rule. Model simulated for positive productivity shock expansionary shock. Results show that improves overall economic activity, increases output short term only.