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Assessing External Sustainability in India

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  • Tim Callen
  • Paul Cashin

Abstract

This paper examines the solvency and sustainability of India’s external imbalances and analyzes the optimality of its capital flows. We use three approaches: an intertemporal model of the current account that allows for capital controls; a composite model of macroeconomic indicators that yields probabilities of future balance of payments crises; and scenarios that examine the path of the current account consistent with the stabilization of India’s external liability-to-GDP ratio. The results indicate that India’s intertemporal budget constraint is satisfied and that the path of its current account imbalances is sustainable, with some support for the optimality (given capital controls) of its external borrowing.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/181.

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Length: 30
Date of creation: 01 Dec 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/181

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Cited by:
  1. JORDAN, Alwyn & STANFORD, Sunielle, 2006. "A Derivation Of The Optimal Current Account Balance For Barbados, Jamaica And Trinidad And Tobago," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(1).
  2. Benoît Mercereau, 2003. "The Role of Stock Markets in Current Account Dynamics," IMF Working Papers 03/108, International Monetary Fund.
  3. Olumuyiwa Adedeji, 2001. "The Size and Sustainability of the Nigerian Current Account Deficits," IMF Working Papers 01/87, International Monetary Fund.
  4. Alexander Bilson Darku, 2010. "Consumption smoothing, capital controls and the current account in Ghana," Applied Economics, Taylor & Francis Journals, vol. 42(20), pages 2601-2616.

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