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What Caused the 1991 Currency Crisis in India?

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  • Sweta Chaman Saxena
  • Valerie Cerra

Abstract

Did real overvaluation contribute to the 1991 currency crisis in India? This paper seeks an answer by constructing the equilibrium real exchange rate, using an error correction model and a technique developed by Gonzalo and Granger (1995). The results are affirmative and the evidence indicates that current account deficits and investor confidence also 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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/157.

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Length: 27
Date of creation: 01 Oct 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/157

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Keywords: Devaluation; Exchange rates; Capital controls; Economic models; exchange rate; real exchange rate; current account; current account deficits; current account balance; effective exchange rate; real effective exchange rate; equilibrium exchange rate; nominal exchange rate; balance of payments; currency crisis; reserve bank; exchange controls; external debt; current account deficit; exchange rate depreciation; exchange rate appreciation; real effective exchange rates; real exchange rates; current account balances; real exchange rate appreciation; effective exchange rates; external financing; domestic currency; floating exchange rates; flexible exchange rates; exchange rate misalignments; nominal exchange rate depreciation; real exchange rate overvaluation; ratio of debt; exchange rate dynamics; fixed exchange rate regime; real exchange rate misalignment; exchange rate movements; real exchange rate series; exchange rate misalignment; commercial debt; government deficits; exchange rate regime; exchange rate adjustment; foreign exchange; fixed exchange rate; fixed nominal exchange rate; exchange rate overvaluation; exchange rate crisis; overvalued exchange rate; exchange rate adjustments; debt service; foreign exchange market;

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Cited by:
  1. Mallick, Sushanta K., 2005. "Tight credit policy versus currency depreciation: Simulations from a trade and inflation model of India," Journal of Policy Modeling, Elsevier, vol. 27(5), pages 611-627, July.
  2. Patricia, Tovar, 2011. "India: The use of temporary trade barriers," MPRA Paper 41054, University Library of Munich, Germany.
  3. Cheng, Fuzhi & Orden, David, 2005. "Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates: Empirical Evidence from India and China," 2005 Annual meeting, July 24-27, Providence, RI 19121, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Bown, Chad P. & Tovar, Patricia, 2011. "Trade liberalization, antidumping, and safeguards: Evidence from India's tariff reform," Journal of Development Economics, Elsevier, vol. 96(1), pages 115-125, September.
  5. Sen Gupta, Abhijit, 2010. "Management of International Capital Flows: The Indian Experience," MPRA Paper 23747, University Library of Munich, Germany.
  6. Petia Topalova, 2010. "Factor Immobility and Regional Impacts of Trade Liberalization: Evidence on Poverty from India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 1-41, October.
  7. Lane, Philip R. & Schmukler, Sergio, 2006. "The International Financial Integration of China and India," CEPR Discussion Papers 5852, C.E.P.R. Discussion Papers.
  8. Vaz, Eric, 2013. "The Spatial Business Landscape of India," Journal of Spatial and Organizational Dynamics, CIEO-Research Centre for Spatial and Organizational Dynamics, University of Algarve, vol. 1(4), pages 241-253.
  9. Cheng, Fuzhi & Orden, David, 2006. "Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates (PSEs) in India," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25299, International Association of Agricultural Economists.
  10. Mahvash Saeed Qureshi, 2008. "Africa's Oil Abundance and External Competitiveness," IMF Working Papers 08/172, International Monetary Fund.
  11. repec:ris:cieodp:2013_020 is not listed on IDEAS
  12. Cheng, Fuzhi & Orden, David, 2005. "Exchange rate misalignment and its effects on agricultural producer support estimates," MTID discussion papers 81, International Food Policy Research Institute (IFPRI).

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