Speed of Adjustment and Inflation – Unemployment Tradeoff in Developing Countries – Case of India

This paper estimates the short-run aggregate supply curve for the Indian economy over the period 1950-51 to 2008-09. Methodological improvements in this paper include the technique of estimating adaptive expectations, constrained estimation consistent with long run equilibrium, and introduction of the extended Phillips curve. The study also attempts to investigate the question of speed of recovery and the choice of adjustment paths available to policymakers in face of adverse supply shocks. In order to estimate the inflation-unemployment tradeoff the regular Phillips curve which lies at the root of the aggregate supply curve is estmated. The estimation is based on using adaptive inflationary expectations and supply shocks. the extended part of the Phillips curve to analyze the question of speed of recovery and the choice of adjustment path. [W.P. No. 2011 – 07 – 01]. URL: [http://www.iimahd.ernet.in/assets/snippets/workingpaperpdf/2061814832011-07-01.pdf].