We develop a closed-economy DSGE model of the Indian economy and estimate it by Bayesian Maximum Likelihood methods using Dynare. We build up in stages to a model with a number of features important for emerging economies in general and the Indian economy in particular: a large proportion of credit-constrained consumers, a financial accelerator facing domestic firms seeking to finance their investment, and an informal sector. The simulation properties of the estimated model are examined under a generalized inflation targeting Taylor-type interest rate rule with forward and backward-looking components. We find that, in terms of model posterior probabilities and standard moments criteria, inclusion of the above financial frictions and an informal sector significantly improves the model fit.JEL Classification: E52, E37, E58

In this paper we propose a simple method of testing for cointegration in models that allow for multiple shifts in the long-run relationship. The procedure consists of carrying out conventional residual-based tests with standardized residuals from an appropriate Markov switching model. Our Monte Carlo results show that standard tests work well, even though their asymptotic validity can be questioned because they are not based on least-squares residuals. An empirical application to the present-value model of stock prices is also discussed.

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In this paper, we examine parameter identi…cation in the hybrid speci…cation of the New Keynesian Phillips Curve proposed by Gali and Gertler (1999). We employ recently developed moment-conditions inference procedures, which provide a more e¢ cient and reliable econometric framework for the analysis of the NKPC.In particular, we address the issue of parameter identi…cation, obtaining robust con…dence sets for the model's parameters. Our results cast serious doubts on the empirical validity of the NKPC.The authors thank the editor and a referee for useful comments. The second author acknowledges …nancial support from ESRC grant RES-061-25-0115. A previous version of the paper circulated with the title "On the robustness of NKPC estimates". We are grateful to Jordi Gali and J. David López-Salido for providing the data used in their papers. We are also indebted to Patrik Guggenberger for discussions on the implementation of GEL procedures. The usual disclaimer applies.y Corresponding author. Address: