Chetan Ghate

• Ph.D. Economics, M.S Mathematics, M.A Economics
• Professor at Indian Statistical Institute - Delhi Center

How does informality in labour markets affect inflation stabilisation and monetary policy setting by central banks? To address this, we build a medium-scale NK-DSGE model with segmented labour markets. We introduce search and matching frictions in both formal jobs as well as in informal casual jobs. We calibrate the model to India. As in the data,...

A major critique of the Mahalanobis model appeared in Vakil and Brahmananda (1956). These authors disagreed with a capital goods intensive investment strategy to development, and argued for a wage goods approach which they felt was more appropriate for India’s dualistic economy. This approach was polar opposite of the Mahalanobis model. Rao (1996)...

The Mahalanobis model is a closed-economy model. It is therefore unable to address questions such as whether economic growth would be higher if the economy were open, what would be the pattern of investment in an open economy, and could the assumption of an open economy be a force for growth accelerations. The “autarchic character” of the Mahalanob...

To study India's debt dynamics, we assemble a novel data-set on Indian public debt with consistently defined aggregate annual components from 1951 to 2018, and Centre-State security level data from 2000 to 2018. Based on aggregate debt data, we quantify the contribution of inflation, real GDP growth, nominal interest rates and primary deficit/surpl...

This book provides an analytical and computational approach to solving and simulating the Mahalanobis model and the papers surrounding it. The book comes up, perhaps for the first time, with a holistic examination of an important growth model that emerged out of India in the 1950s. It contains detailed derivations of the Mahalanobis model and the s...

In this chapter, we extend the Mahalanobis Model of Chap. 2 in three directions. We first write down a simple stochastic version of the Mahalanobis model to illustrate the dynamics of the model with a one-period positive shock which affects incremental investment. Second, we embed a more general assumption in the model of Chap. 2 that rather than a...

Mahalanobis (1955) extended the two-sector framework to a four-sector framework, which formed the analytical foundation for India’s Second Five Year Plan (1956–1961). The four-sector model included the original capital goods sector of the two-sector model, and then disaggregated the consumption goods sector into three other consumption goods sector...

The Mahalanobis model attracted worldwide attention by academic economists, statisticians, and development practitioners in the field. In this chapter, we detail what we feel are the most important of these critiques, due to Martin Bronfenbrenner, Charles Bettelheim, Hannan Ezikiel, and J.B.S. Haldane. We discuss the implications of these criticism...

We focus on the simple two-sector Mahalanobis model. It is important to remember that the pre-cursor to Mahalanobis (1953) was the Harrod-Domar growth model, which was the underlying growth model for India’s first five year plan (1951–1956). Both Mahalanobis (1953) and the Harrod-Domar model also had similarities with an earlier Marxist tradition o...

We assemble a novel data-set on Indian public debt with consistently defined aggregate annual components from 1951–2018, and Centre-State security level data from 2000–2018. We quantify the contribution of inflation, real GDP growth, nominal interest rates and primary deficit/surplus towards India’s debt-dynamics. We find that inflation’s role in d...

We assemble a novel data-set on Indian public debt with consistently defined aggregate annual components from 1951-2018, and Centre-State security level data from 2000-2018. We quantify the contribution of inflation, real GDP growth, nominal interest rates and primary deficit/surplus towards India's debt-dynamics. We find that inflation's role in d...

Governments in EMDEs routinely intervene in agriculture markets to stabilize food prices in the wake of adverse domestic or external shocks. Such interventions unexpectedly involve a large increase in the procurement and redistribution of food, which we call a redistributive policy shock. What is the impact of a redistributive policy shock on the s...

We build a small open economy RBC model with financial frictions to analyze spending and tax based fiscal consolidations in emerging market economies (EMEs). We show that if government spending is a substitute to private consumption in household utility, a spending based fiscal consolidation has an expansionary effect on out put. In contrast, tax b...

We build and calibrate a New Keynesian monetary business cycle model for the Indian economy to study why monetary transmission is weak. Our baseline model features a variety of banking and financial sector frictions. An extended model incorporates an informal sector. The predominant channel of monetary transmission is a credit channel. Throughout w...

Purpose Governments in both developing and developed economies play an active role in labor markets in the form of providing both formal public sector jobs and employment through public workfare programs. The authors refer to this as employment targeting. The purpose of the paper is to consider different labor market effects of employment targeting...

Central banks in emerging market economies often grapple with understanding the monetary policy response to an inter-sectoral terms of trade shock. To address this, we develop a three sector closed economy NK-DSGE model calibrated to India. Our framework can be generalized to other emerging markets and developing economies. The model is characteriz...

This book presents research that applies contemporary monetary theory and state-of-the-art econometric methods to the analysis of the monetary and financial aspects of the Indian economy and the impact of monetary policy on economic performance. Indian monetary policy has attracted significant attention from Indian and international macroeconomists...

We construct a two-sector (agriculture and modern) overlapping generations growth model calibrated to India to study the effects of sectoral tax rates, sectoral infrastructure investments, and labor market frictions on potential growth in India. Our model is motivated by the idea that because misallocation depends on distortions, policies that redu...

We construct a two-sector (agriculture and modern) overlapping generations growth model calibrated to India to study the effects of sectoral tax rates, sectoral infrastructure investments, and labor market frictions on potential growth in India. Our model is motivated by the idea that because misallocation depends on distortions, policies that redu...

Why do countries with different tax arrangements exhibit the same growth rate? We refer to this as a growth-tax puzzle. To explain the puzzle, we construct a tractable endogenous growth model with endogenous investment specific technological change (ISTC). Public and private capital stock externalities are assumed to augment ISTC. A specialized lab...

Emerging market economy business cycles are typically characterized by high consumption and output volatility, strongly counter-cyclical current accounts, and counter-cyclical real interest rates. Evidence from the wider EME and less developed economy business cycle experience suggests however that real interest rates can also be pro-cyclical. We r...

The unbalanced nature of India’s growth has caused considerable concern but little is known about its causes. We use a new data set of district-level income and socio-economic data to explore the determinants of transitional growth at the district level. We find that there is absolute divergence across districts but conditional convergence once we...

Since the unfolding of the 2008 global financial crisis, the G20 has played a major role in coordinating macroeconomic policies of major economies and reviving the world economy. As the world’s primary forum for international economic cooperation, its objectives have been to ensure more sustainable and balanced growth, achieve economic and financia...

At the outbreak of the global financial crisis, 2008, the G20 was widely acknowledged as helping prevent an even more serious decline in the global economy. It helped to calm the panic in financial markets and articulate a set of possible policy options to restore global stability and growth. However, as the dual-track recovery set in, policy optio...

In earlier research we identified the start of the growth turnaround in the late 1980s. This is consistent with the pattern of (particularly trade) policy liberalisation at the time. Since then there has been a remarkable improvement in per capita incomes. But a puzzle remains. The change in policy should have had a symmetric effect across India. Y...

India's remarkable economic growth in recent years has made it one of the fastest-growing economies in the world. Its rapid growth, has, however, been accompanied by widening regional disparities, poverty, malnutrition, and socio-political instability. Understanding India's dualistic development process, and the emergence of the Indian economic mir...

Is it politically feasible for governments to engineer endogenous growth? This paper illustrates two reasonable political decision mechanisms by which fiscal policy generates endogenous growth with a single accumulable factor, under a constant returns to scale production technology, and without production externalities. In the first mechanism, opti...

This short note provides some supplementary analysis to the regressions in Section 5 of Ghate and Wright (forthcoming), that was carried out after the refereeing process for that paper was completed, and hence could not be included in the published version. It is not a free-standing paper, but is intended to be read in conjunction with the publishe...

This paper presents a comprehensive set of stylised facts for business cycles in India from 1950 - 2009. We find that the nature of the business cycle has changed dramatically after India’s liberalisation reforms in 1991. In particular, after the the mid 1990s, the properties of India’s business cycle has moved closer in key respects to select adva...

We analyze a panel of output series for India, disaggregated by 15 states and 14 broad industry groups. Using principal components (Bai, 2004; Bai and Ng, 2004) we find that a single common "V-factor" captures well the significant shift in the cross-sectional distribution of state-sectoral output growth rates since the 2nd half of the 1980s. The ti...

We construct a simple political economy model with imperfect capital markets to explain infrastructure investments across Indian states. The model predicts that: i) the fixed cost of accessing the modern sector, ii) the initial stock of infrastructure, iii) median voter wealth, and iv) corruption, can all potentially explain why different states ha...

We examine the link between voting outcomes, wealth heterogeneity, and endogenous labor - leisure choice in the majority-voting - endogenous-growth frameworks of Alesina and Rodrik (1994) and Das and Ghate (2004). We augment these frameworks to incorporate leisure-dependent utility and allow households to vote on factor-specific income taxes. When...

We construct a simple political economy model with imperfect capital markets to explain infrastructure investments across Indian states. The model predicts that: i) the fixed cost of accessing the modern sector, ii) the initial stock of infrastructure, iii) median voter wealth, and iv) corruption, can all potentially explain why different states ha...

We construct an overlapping generations model to study the effect of capital controls on human capital investments and the incidence of redistributive taxation in a growing economy. We argue that the conventional wisdom linking higher capital controls to lower growth is reproduced only when an economy is sufficiently developed. For under-developed...

This paper constructs a dynamic analysis of the growth and distribution models of Das and Ghate (2004) and Alesina and Rodrik (1994) when leisure is valued by agents. When leisure enters the utility function, we show that the tax rate on capital income chosen in a political equilibrium is lower than the growth maximizing tax rate. This slows growth...

We construct an overlapping generations model to study the effect of capital controls on human capital investments and the incidence of redistributive taxation in a growing economy. We argue that the conventional wisdom linking higher capital controls to lower growth is reproduced only when an economy is sufficiently developed. For under-developed...

Can a growing welfare state induce a regime switch in the growth rate of an economy? This paper constructs a dynamic political economy model of economic growth and the welfare state in which both variables are nonlinearly related and jointly endogenous. Using a Markov switching framework over the period 1950–2001, we find that the structural declin...

Does distributive conflict diminish during the course of economic development? This article outlines a model in which distribution, the tax rate and growth evolve endogenously over time. When voting occurs over a tax on capital, we show that the growth rate is maximized at the political equilibrium in the long run. When voting occurs over a general...

We study the effect of capital controls on the level of investment in human capital and the resulting growth path of an economy. The economy consists of two groups of agents based on the ownership of factors of production. One type of agents - called workers - own human capital and bequeath education to their offsprings. The other group of agents -...

In comparison to the standard literature on inequality and growth which assumes the former to be exogenous, we formulate a model in which inequality and growth are both endogenous. Long-run distribution, at least locally, is shown to be independent of the initial distribution of factor ownership. It is shown that exogenous policy changes that are p...

The paper presents a model of optimal government policy when policy choices may exacerbate sociopolitical instability (SPI). The authors show that optimal policy that takes into account SPI transforms a standard concave growth model into a model with both a poverty trap and endogenous growth. The resulting equilibrium dynamics inherit the propertie...

Is it politically feasible for governments to engineer endogenous growth? This paper illustrates two reasonable political decision mechanisms by which fiscal policy generates endogenous growth with a single accumulable factor, and a constant returns to scale production technology without production externalities. In the first mechanism, policies ar...

US government expenditures increased rapidly during the post-war period, then slowed in the 1980s and began falling in 1992. To examine the dynamics of the growth and subsequent reduction in government spending, we present a general equilibrium growth model in which politicians chose government spending to maximize support by their constituents. Th...

We present a model of optimal government policy when policy choices may exacerbate socio-political instability (SPI). We show that optimal policy that takes into account SPI transforms a standard concave growth model into a model with both a poverty trap and endogenous growth. The resulting equilibrium dynamics inherit the properties of government...

This paper generalizes the analysis of distributive conflict, politics, and growth developed by by Alesina-Rodrik (1994). We construct a heterogenous-agent framework in which both growth and the distribution of wealth are endogenous. Due to adjustments in the distribution of wealth, the composition of factor ownership across households equalizes in...

This paper constructs a one-sector growth model to examine the impact of political lobbying on the formation of fiscal policy. The model predicts that lobbying can induce endogenous regime switches, development traps, and a sub-optimal allocation of government expenditures between productive and unproductive ends, leading to long run income losses...

We construct a model of endogenous growth in which public capital financed by distortionary taxes influences investment specific technological change. Our main result is that there exist infinitely many capital and labor tax-subsidy combinations that decentralize the planner's growth rate. Hence the optimal factor income tax mix is indeterminate wh...

A prominent feature of India's growth miracle is the disparate experiences of growth across India, with the divergence in income levels between the fast and slower growing states approaching the size of gaps seen between the world's poor-est and richest countries. To better understand the sources of divergence and convergence we use a new data set...

Typescript (photocopy). Thesis (Ph. D.)--Claremont Graduate University, 1999. Includes bibliographical references (leaves 70-76).