Wednesday, April 17, 2013

Fiscal Reforms, Fiscal Rule and Development Spending: How Indian States have Performed?

NIPFP Working Paper 122

Pinaki Chakraborty and Bharatee Bhusana Dash
April 2013

Credit constraints, productivity shocks and consumption volatility in emerging economies

NIPFP Working Paper 121

Rudrani Bhattacharya and Ila Patnaik
March 2013


How does access to credit impact consumption volatility? Theory and evidence from advanced economies suggests that greater household access to finance smooths consumption. Evidence from emerging markets, where consumption is usually more volatile than income, indicates that financial reform further increases the volatility of consumption relative to output. We address this puzzle in the framework of an emerging economy model in which households face shocks to trend growth rate, and a fraction of them are credit constrained. Unconstrained households can respond to shocks to trend growth by raising current consumption more than rise in current income. Financial reform increases the share of such households, leading to greater relative consumption volatility. Calibration of the model for pre and post financial reform in India provides support for the model's key predictions.

Emerging Economy Business Cycles: Financial Integration and Terms of Trade Shocks

NIPFP Working Paper 120

Rudrani Bhattacharya, Ila Patnaik and Madhavi Pundit
March 2013


This paper analyses the extent to which financial integration impacts the manner in which terms of trade affect business cycles in emerging economies. Using a small open economy model, we show that as capital account openness increases in an economy that faces trade shocks, business cycle volatility reduces. For an economy with limited financial openness, and a relatively open trade account, a model with exogenous terms of trade shocks is able to replicate the features of the business cycle.