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Foreign Capital, Inflation, Sterilization, Crowding-Out and Growth: Some Illustrative Models


  • Singh, Nirvikar
  • Srinivasan, T. N.


This paper discusses some puzzles in the contemporary macroeconomic scene in India, from the perspective of public finance and economic development. These include a fiscal deficit higher than it was during the 1991 crisis, but without a large current account deficit or rise in inflation or interest rates, a rising inflow of external capital, accompanied by the RBI’s sterilizing these inflows and accumulating large reserves, even in the face of low inflation. We offer a critique of some previous analyses, and some models that are suggestive of how real and monetary factors might be integrated in providing a firmer grounding for the policy debates current in India.

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  • Singh, Nirvikar & Srinivasan, T. N., 2004. "Foreign Capital, Inflation, Sterilization, Crowding-Out and Growth: Some Illustrative Models," Santa Cruz Center for International Economics, Working Paper Series qt1m09m3kf, Center for International Economics, UC Santa Cruz.
  • Handle: RePEc:cdl:scciec:qt1m09m3kf

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    References listed on IDEAS

    1. Singh, Nirvikar & Srinivasan, T. N., 2004. "Fiscal Policy in India: Lessons and Priorities," Santa Cruz Center for International Economics, Working Paper Series qt67t3p20w, Center for International Economics, UC Santa Cruz.
    2. Vijay Joshi & Sanjeev Sanyal, 2004. "Foreign Inflows and Macroeconomic Policy in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 1(1), pages 135-188.
    3. Deepak Lal, 2002. "Financial Exuberace: Savings Deposits, Fiscal Deficits and Interest Rates In India," UCLA Economics Working Papers 821, UCLA Department of Economics.
    4. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
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    Cited by:

    1. Buiter, Willem H. & Patel, Urjit R., 2006. "India's Public Finances: Excessive Budget Deficits, a Government-Abused Financial System and Fiscal Rules," CEPR Discussion Papers 5502, C.E.P.R. Discussion Papers.


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