Entrepreneurial Impulse, Investment Behaviour and Economic Fluctuations –A VAR Analysis with Indian Data

This study analyses the observed behaviour of growth cycles and the dynamics of economic fluctuations in terms of entrepreneurial impulse with Indian macroeconomic time series data for more than 60 years. The time series of GDP and investment are decomposed into a cyclical and trend components by using HP filters. The stochastic behaviour of growth cycles of the macroeconomic time series have been examined. The fluctuations of investment are explained in terms of persistence, volatility and co-movements of the cyclical components of GDP. The study observes that the growth cycles of private investment was much more volatile than the growth cycles of aggregate investment and output. Investments in India, both private and total, were pro-cyclical in terms of the original series, but became acyclical after detrending them. This study also observes that the fluctuations of growth cycle frequencies of private investment appeared even when there were no shocks to GDP. Such type of investment behaviour may be because of the self-fulfilling beliefs of investors. Private investment in India has not been affected badly by the severe balance of payments crises. Rather, a cyclical downturn was seen as an opportunity to invest by the large business houses