ESTIMATION OF PHILLIPS CURVE IN INDIAN CONTEXT

This paper revisits the empirical existence of the Phillips curve in the Indian context. To estimate the Phillips curve we need two variables – inflation and the output gap. In the case of India, incorrect measurement of both variables causes much difficulty in estimating the Phillips curve. I have used Hodrick-Prescott filter approach to find the output gap, ARMA (1) model for expected inflation and finally, used Generalized Method of Moment estimation to estimate the Phillips curve in Indian context. My result shows that the tradeoff between inflation and growth is positive in India during the period of 1970 to 2010. Moreover, I also found that there is no long run relationship between the variables viz; inflation, expected inflation and output gap .Because all the variables are stationary at their original level, which proved that Phillips curve only in short run, not in long run. In long run, it is vertical