Which model best explains the 1991 currency crisis in India? Did real overvaluation contribute to the crisis? This paper seeks the answers through error correction models and by constructing the equilibrium real exchange rate using a technique developed by Gonzalo and Granger (1995). The evidence indicates that overvaluation as well as current account deficits and investor confidence played significant roles in the sharp exchange rate depreciation. The ECM model is supported by superior out-of-sample forecast performance versus a random walk model. . Copyright 2002, International Monetary Fund
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Article provided by Palgrave Macmillan Journals in its journal IMF Staff Papers.
Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation
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