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Why India choked when Lehman broke

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  • Ila Patnaik

    (NIPFP)

  • Ajay Shah

Abstract

India has an elaborate system of capital controls which impede cap- ital mobility and particularly short-term debt. Yet, when the global money market fell into turmoil after the bankruptcy of Lehman Broth- ers on 13/14 September 2008, the Indian money market immediately experienced considerable stress, and the operating procedures of mon- etary policy broke down. We suggest that Indian multinationals were using the global money market and were short of dollars on 15 Septem- ber. They borrowed in India and took capital out of the country. We make three predictions that follow from this hypothesis, and _nd that the evidence matches these predictions. This suggests an important role for Indian multinationals in India's evolution towards de facto convertibility.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22974.

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Date of creation: Jan 2010
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Handle: RePEc:eab:financ:22974

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Related research

Keywords: capital controls; global nancial crisis; Indian multina- tionals; de facto convertibility;

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References

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  1. Dilek Demirbas & Ila Patnaik & Ajay Shah, 2010. "Graduating to Globalisation : A Study of Southern Multinationals," Finance Working Papers, East Asian Bureau of Economic Research 21854, East Asian Bureau of Economic Research.
  2. repec:nbr:nberwo:11387 is not listed on IDEAS
  3. Eswar S. Prasad, 2008. "Some New Perspectives on India's Approach to Capital Account Liberalization," India Policy Forum, Global Economy and Development Program, The Brookings Institution, Global Economy and Development Program, The Brookings Institution, vol. 5(1), pages 125-178.
  4. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, Universidad del CEMA, vol. 0, pages 35-54, November.
  5. Prasad, Eswar, 2009. "India's Approach to Capital Account Liberalization," IZA Discussion Papers, Institute for the Study of Labor (IZA) 3927, Institute for the Study of Labor (IZA).
  6. Sebastian Edwards, 2005. "Capital Controls, Sudden Stops and Current Account Reversals," NBER Working Papers, National Bureau of Economic Research, Inc 11170, National Bureau of Economic Research, Inc.
  7. Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2003. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," NBER Working Papers, National Bureau of Economic Research, Inc 9715, National Bureau of Economic Research, Inc.
  8. Eswar S. Prasad, 2009. "India’s Approach to Capital Account Liberalization," Working Papers, eSocialSciences id:2043, eSocialSciences.
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Citations

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Cited by:
  1. Abhijit Sen Gupta, 2011. "The Current State of Financial and Regulatory Frameworks in Asian Economies : The Case of India," Governance Working Papers, East Asian Bureau of Economic Research 23233, East Asian Bureau of Economic Research.
  2. Shah, Ajay & Patnaik, Ila, 2011. "Reforming the Indian financial system," Working Papers, National Institute of Public Finance and Policy 11/80, National Institute of Public Finance and Policy.
  3. Ila Patnaik & Ajay Shah, 2010. "Asia Confronts the Impossible Trinity," Macroeconomics Working Papers, East Asian Bureau of Economic Research 22814, East Asian Bureau of Economic Research.
  4. Shah, Ajay & Patnaik, Ila, 2011. "India's financial globalisation," Working Papers, National Institute of Public Finance and Policy 11/79, National Institute of Public Finance and Policy.
  5. Thomas Willett, 2010. "Policy Focus: Some lessons for economists from the financial crisis," Indian Growth and Development Review, Emerald Group Publishing, Emerald Group Publishing, vol. 3(2), pages 186-208, October.
  6. Patnaik, Ila & Shah, Ajay, 2011. "Did the Indian capital controls work as a tool of macroeconomic policy?," Working Papers, National Institute of Public Finance and Policy 11/87, National Institute of Public Finance and Policy.
  7. Ila Patnaik & Ajay Shah, 2012. "Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 60(3), pages 439-464, September.
  8. Basu, Sanjay, 2011. "Comparing simulation models for market risk stress testing," European Journal of Operational Research, Elsevier, Elsevier, vol. 213(1), pages 329-339, August.

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