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Why India Choked when Lehman Broke

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  • Patnaik, Ila
  • Shah, Ajay

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].
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Patnaik, Ila & Shah, Ajay, 2010. "Why India Choked when Lehman Broke," India Policy Forum, National Council of Applied Economic Research, vol. 6(1), pages 39-72.
    • Handle: RePEc:nca:ncaerj:v:6:y:2010:i:2010-1:p:39-72
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    File URL: https://www.ncaer.org/publication/india-policy-forum-2009-10
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    Citations

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    Cited by:

    1. Ila Patnaik & Madhavi Pundit, 2014. "Is India's Long-Term Trend Growth Declining?," ADB Economics Working Paper Series 424, Asian Development Bank.
    2. Patnaik, Ila & Pundit, Madhavi, 2016. "Where is India's Growth Headed?," Working Papers 16/159, National Institute of Public Finance and Policy.
    3. Radhika Pandey & Ila Patnaik & Ajay Shah, 2017. "Dating business cycles in India," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 10(1), pages 32-61, April.
    4. Ila Patnaik & Ajay Shah, 2012. "Asia Confronts the Impossible Trinity," Chapters, in: Masahiro Kawai & Peter J. Morgan & Shinji Takagi (ed.), Monetary and Currency Policy Management in Asia, chapter 7, Edward Elgar Publishing.
    5. Ila Patnaik & Ajay Shah, 2012. "Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(3), pages 439-464, September.
    6. Ajay Shah, 2023. "The journey of Indian finance," Working Papers 25, xKDR.
    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. "Some lessons for economists from the financial crisis," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 3(2), pages 186-208, September.
    9. Radhika Pandey & Ila Patnaik & Ajay Shah, 2019. "Business Cycle Measurement in India," Societies and Political Orders in Transition, in: Sergey Smirnov & Ataman Ozyildirim & Paulo Picchetti (ed.), Business Cycles in BRICS, pages 121-152, Springer.
    10. 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.
    11. Basu, Sanjay, 2011. "Comparing simulation models for market risk stress testing," European Journal of Operational Research, Elsevier, vol. 213(1), pages 329-339, August.
    12. 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.
    13. repec:ind:icrier:254 is not listed on IDEAS
    14. Ila Patnaik & Ajay Shah, 2011. "India's Financial Globalisation," IMF Working Papers 2011/007, International Monetary Fund.
    15. Srinivasan Palamalai & Kalaivani Mariappan & Christopher Devakumar, 2014. "On the Temporal Causal Relationship Between Macroeconomic Variables," SAGE Open, , vol. 4(1), pages 21582440145, February.
    16. Paras Sachdeva & Wasim Ahmad & N. R. Bhanumurthy, 2024. "Public expenditure multiplier across business cycle phases in an emerging economy: new empirical evidence and dimension," Empirical Economics, Springer, vol. 66(1), pages 279-299, January.

    More about this item

    Keywords

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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