The relationship between output uncertainty and economic growth-evidence from India

Abstract

This study examines the causal nexus between output growth and its uncertainty for India using monthly time series data for the period from April 1980 to April 2011. In this regard, both simultaneous equation method and two-step procedure methods are estimated. In two-step procedure method, conventional Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models and Stochastic Volatility (SV) models are used to measure output uncertainty. The empirical evidence suggests for both measures of uncertainty, there exists a unidirectional causality from output growth to its uncertainty with a positive sign. The results for both pre and post economic reform period in India are also same and identical.