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Capital controls, exchange rate regime and monetary policy independence in India


  • Amit Ghosh
  • Ramya Ghosh


An enduring challenge that policy makers in open economies confront is the choice between three desirable, yet jointly unattainable objectives of maintaining a fixed exchange rate regime, free international capital flows and monetary policy independence. This paper examines these three tenets of the 'policy trilemma' for India over its post liberalisation period. We first construct a new measure of capital controls, documenting an easing of restrictions on capital flows over time. Next, we find the de facto evolution of India's exchange rate regime to move towards a greater degree of flexibility with declining weights attached to the US dollar. Finally, we reveal India to preserve her monetary policy sovereignty over the post-liberalisation period with a slight increase in such independence after the turn of the millennium. We note the findings of this study to be in line with the predictions of the trilemma.

Suggested Citation

  • Amit Ghosh & Ramya Ghosh, 2012. "Capital controls, exchange rate regime and monetary policy independence in India," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 5(3), pages 212-230.
  • Handle: RePEc:ids:ijepee:v:5:y:2012:i:3:p:212-230

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    References listed on IDEAS

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    More about this item


    exchange rate regimes; capital controls; monetary policy independence; policy trilemma; emerging economies; India; capital flows.;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements


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