IDEAS home Printed from https://ideas.repec.org/a/wsi/gejxxx/v17y2017i03ngej-2017-0012.html
   My bibliography  Save this article

Policy Trilemma in India: Exchange Rate Stability, Independent Monetary Policy and Capital Account Openness

Author

Listed:
  • Sayantan Bandhu Majumder

    (Department of Economics, Sambhunath College, Birbhum, Labpur, West Bengal 731303, India)

  • Ranjanendra Narayan Nag

    (Department of Economics, St. Xavier’s College, Kolkata, West Bengal, India)

Abstract

This paper aims to investigate the situation of policy trilemma in India. Analysing the quarterly data from 1991 to 2015, we find that though the trilemma constraint is binding in the long run, there is ample evidence of short-run deviations from the constraint. Intervention in the foreign exchange market by the Reserve bank of India has successfully helped to relax this constraint. The policy mix has changed over this period – the degree of capital account openness has gradually increased, mainly at the cost of exchange rate stability. We further examine the determinants and the macroeconomic effects of the trilemma policy configuration. We find that the trilemma efficiency depends on the financial stress, financial development, intervention by the Central bank and the liquidity in the economy. Higher monetary policy independence helps to reduce the inflation rate while exchange rate stability and capital account openness are associated with the higher growth rate and the larger output gap.

Suggested Citation

  • Sayantan Bandhu Majumder & Ranjanendra Narayan Nag, 2017. "Policy Trilemma in India: Exchange Rate Stability, Independent Monetary Policy and Capital Account Openness," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(3), pages 1-13, September.
    • Handle: RePEc:wsi:gejxxx:v:17:y:2017:i:03:n:gej-2017-0012
    DOI: 10.1142/GEJ-2017-0012
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/GEJ-2017-0012
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/GEJ-2017-0012?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Padhan, Hemachandra & Sahu, Santosh Kumar & Dash, Umakant, 2021. "Non-linear analysis of international reserve, trade and trilemma in India," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    2. Ramandeep Kaur, 2019. "Sensitivity of Macroeconomic Policy Goals to Trilemma and Quadrelimma Choices," Asian Development Policy Review, Asian Economic and Social Society, vol. 7(4), pages 219-238, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:gejxxx:v:17:y:2017:i:03:n:gej-2017-0012. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: https://www.worldscientific.com/worldscinet/gej .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.