Macro Economic Theory: An Econometric Approach

This book compiles empirical investigation on macro economic theory. In case of Phillips curve analysis in India, the study confirms ¿Uni-directional Causality¿ running from running from inflation to unemployment in the economy of India over the period 1986-2002. Since Inflation granger caused unemployment, monetary policy is much more appropriate to reduce unemployment. This study empirically investigated a key stochastic implication of the permanent income hypothesis (PIH) that an income innovation generates the same size revision in consumption as in permanent income. Using time series data for the period 1971-2001, in India, our results point to a strong acceptance of PIH i.e., there is no causal relationship but there is proportional relationship between permanent income and permanent consumption. Using time series data for the period 1970-2007, in Sri Lanka, our results point to a strong acceptance of PIH i.e., there is no causal relationship but there is proportional relationship between permanent income and permanent consumption.