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What Caused the 1991 Currency Crisis in India?

Author

Listed:
  • Valerie Cerra

    (International Monetary Fund)

  • Sweta Chaman Saxena

    (International Monetary Fund)

Abstract

Which model best explains the 1991 currency crisis in India? Did real overvaluation contribute to the crisis? This paper seeks the answers through error correction models and by constructing the equilibrium real exchange rate using a technique developed by Gonzalo and Granger (1995). The evidence indicates that overvaluation as well as current account deficits and investor confidence 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. . Copyright 2002, International Monetary Fund

Suggested Citation

  • Valerie Cerra & Sweta Chaman Saxena, 2002. "What Caused the 1991 Currency Crisis in India?," IMF Staff Papers, Palgrave Macmillan, vol. 49(3), pages 1-5.
  • Handle: RePEc:pal:imfstp:v:49:y:2002:i:3:p:5
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    Cited by:

    1. Oumar Diallo & Boileau Loko & Kangni R Kpodar, 2007. "Buoyant Capital Spending and Worries over Real Appreciation; Cold Facts from Algeria," IMF Working Papers 07/286, International Monetary Fund.
    2. 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.
    3. 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.
    4. Mahvash S Qureshi, 2008. "Africa’s Oil Abundance and External Competitiveness; Do Institutions Matter?," IMF Working Papers 08/172, International Monetary Fund.
    5. Philip R. Lane & Sergio L. Schmukler, 2006. "The international financial integration of China and India," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    6. 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).
    7. 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.
    8. 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.
    9. George, Justine, 2016. "Is foreign portfolio Investment beneficial to India’s balance of Payments? : An Exploratory analysis," MPRA Paper 70456, University Library of Munich, Germany.
    10. repec:ris:cieodp:2013_020 is not listed on IDEAS
    11. 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.
    12. repec:wsi:serxxx:v:55:y:2010:i:01:n:s0217590810003663 is not listed on IDEAS
    13. Anurag Sharma, 2008. "Incomplete reform or opportunity: the role of the banking sector in the credit transmission mechanism in India," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 11(4), pages 273-288.
    14. Sen Gupta, Abhijit, 2010. "Management of International Capital Flows: The Indian Experience," MPRA Paper 23747, University Library of Munich, Germany.
    15. Mallick, Sushanta & Marques, Helena, 2010. "Data frequency and exchange rate pass-through: Evidence from India's exports," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 13-22, January.
    16. 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).
    17. Patricia, Tovar, 2011. "India: The use of temporary trade barriers," MPRA Paper 41054, University Library of Munich, Germany.
    18. Nicholas Rada, 2016. "India's post-green-revolution agricultural performance: what is driving growth?," Agricultural Economics, International Association of Agricultural Economists, vol. 47(3), pages 341-350, May.

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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