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Why India Choked when Lehman Broke

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  • Ajay Shah

    ()

  • Ila Patnaik

    ()

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. It is suggested 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. Three predictions are made that follow from this hypothesis, and find that the evidence matches these predictions. This suggests an important role for Indian multinationals in India's evolution towards de facto convertibility [NIPFP WP No. 2010-63].

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:2362.

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Date of creation: Jan 2010
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Handle: RePEc:ess:wpaper:id:2362

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Related research

Keywords: money market; capital controls; global financial crisis; Indian multinationals; effectiveness of capital controls; de facto convertibility; Indian; policy;

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References

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  1. Dilek Demirbas & Ila Patnaik & Ajay Shah, 2013. "Graduating to globalisation: a study of Southern multinationals," Indian Growth and Development Review, Emerald Group Publishing, vol. 6(2), pages 242 - 259, October.
  2. Eswar S. Prasad, 2009. "Some New Perspectives on India's Approach to Capital Account Liberalization," NBER Working Papers 14658, National Bureau of Economic Research, Inc.
  3. repec:nbr:nberwo:11387 is not listed on IDEAS
  4. Eswar S. Prasad, 2009. "India’s Approach to Capital Account Liberalization," Working Papers id:2043, eSocialSciences.
  5. Sebastian Edwards, 2007. "Capital Controls, Sudden Stops, and Current Account Reversals," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 73-120 National Bureau of Economic Research, Inc.
  6. 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 9715, National Bureau of Economic Research, Inc.
  7. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
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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 23233, East Asian Bureau of Economic Research.
  2. Basu, Sanjay, 2011. "Comparing simulation models for market risk stress testing," European Journal of Operational Research, Elsevier, vol. 213(1), pages 329-339, August.
  3. Patnaik, Ila & Shah, Ajay, 2010. "Asia Confronts the Impossible Trinity," ADBI Working Papers 204, Asian Development Bank Institute.
  4. Ila Patnaik & Ajay Shah, 2012. "Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?," IMF Economic Review, Palgrave Macmillan, vol. 60(3), pages 439-464, September.
  5. Shah, Ajay & Patnaik, Ila, 2011. "India's financial globalisation," Working Papers 11/79, National Institute of Public Finance and Policy.
  6. Shah, Ajay & Patnaik, Ila, 2011. "Reforming the Indian financial system," Working Papers 11/80, National Institute of Public Finance and Policy.
  7. Thomas Willett, 2010. "Policy Focus: Some lessons for economists from the financial crisis," Indian Growth and Development Review, Emerald Group Publishing, vol. 3(2), pages 186-208, October.
  8. Patnaik, Ila & Shah, Ajay, 2011. "Did the Indian capital controls work as a tool of macroeconomic policy?," Working Papers 11/87, National Institute of Public Finance and Policy.

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