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Why India choked when Lehman broke

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  • Patnaik, Ila

    ()
    (National Institute of Public Finance and Policy)

  • Shah, Ajay

    ()
    (National Institute of Public Finance and Policy)

Abstract

India has an elaborate system of capital controls which impede capital mobility and particularly short-term debt. Yet, when the global money market fell into turmoil after the bankruptcy of Lehman Brothers on 13/14 September 2008, the Indian money market immediately experienced considerable stress, and the operating procedures of monetary policy broke down. We suggest that Indian multinationals were using the global money market and were short of dollars on 15 September. 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 National Institute of Public Finance and Policy in its series Working Papers with number 10/63.

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Length: 30
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:npf:wpaper:10/63

Note: Working Paper 63, 2010
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Web page: http://www.nipfp.org.in

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  1. 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.
  2. 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.
  3. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," Journal of Finance, American Finance Association, vol. 59(6), pages 2451-2487, December.
  4. repec:nbr:nberwo:11387 is not listed on IDEAS
  5. Prasad, Eswar, 2009. "India's Approach to Capital Account Liberalization," IZA Discussion Papers 3927, Institute for the Study of Labor (IZA).
  6. Demirbas, Dilek & Patnaik, Ila & Shah, Ajay, 2010. "Graduating to globalisation: A study of southern multinationals," Working Papers 10/65, National Institute of Public Finance and Policy.
  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. 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.
  2. Ila Patnaik & Ajay Shah, 2010. "Asia Confronts the Impossible Trinity," Macroeconomics Working Papers 22814, East Asian Bureau of Economic Research.
  3. Abhijit Sen Gupta, 2011. "The Current State of Financial and Regulatory Frameworks in Asian Economies : The Case of India," Finance Working Papers 23233, East Asian Bureau of Economic Research.
  4. Ila Patnaik & Ajay Shah, 2011. "India's Financial Globalisation," IMF Working Papers 11/7, International Monetary Fund.
  5. 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.
  6. Basu, Sanjay, 2011. "Comparing simulation models for market risk stress testing," European Journal of Operational Research, Elsevier, vol. 213(1), pages 329-339, August.
  7. Shah, Ajay & Patnaik, Ila, 2011. "Reforming the Indian financial system," Working Papers 11/80, National Institute of Public Finance and Policy.
  8. 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.

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