Monetary Policy, Capital Flows, And The Exchange Rate
AbstractThe use of monetary policy in India has been constrained by a loose fiscal policy and capital flows. Capital inflows have the potential to cause a Dutch Disease-type situation. The RBI has carried out sterilized intervention to prevent this. In spite of this, the trade balance and, more often than not, the current account continue to be in deficit. Thus the real exchange rate, in spite of the intervention, is inconsistent with external balance (defined as a manageable current account deficit). The problem of capital flows is a self-inflicted pain. The authorities could have kept a lid on capital flows, allowing only the most urgent inflows from a growth standpoint. It would have had a competitive edge in manufacturing. This would have allowed it to expand labor-intensive industry and help mitigate the massive poverty levels.
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Bibliographic InfoPaper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 193.
Length: 30 pages
Date of creation: Dec 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-19 (All new papers)
- NEP-CIS-2011-02-19 (Confederation of Independent States)
- NEP-IFN-2011-02-19 (International Finance)
- NEP-MON-2011-02-19 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Claustre Bajona & Timothy Kehoe, 2010.
"Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 487-513, July.
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- Claustre Bajona & Timothy J. Kehoe, 2006. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," NBER Working Papers 12567, National Bureau of Economic Research, Inc.
- Claustre Bajona & Timothy J. Kehoe, 2008. "Trade, growth, and convergence in a dynamic Heckscher-Ohlin model," Staff Report 378, Federal Reserve Bank of Minneapolis.
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