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Why India Choked when Lehman Broke

  • Ajay Shah

    ()

  • Ila Patnaik

    ()

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].

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Paper provided by eSocialSciences in its series Working Papers with number id:2362.

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Date of creation: Jan 2010
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Handle: RePEc:ess:wpaper:id:2362
Note: Institutional Papers
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  1. Ajay Shah & Ila Patnaik & Dilek Demirbas, 2010. "Graduating to Globalisation: A Study of Southern Multinationals," Working Papers id:2422, eSocialSciences.
  2. Sebastian Edwards, 2007. "Capital Controls, Sudden Stops, and Current Account Reversals," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 73-120 National Bureau of Economic Research, Inc.
  3. Eswar S. Prasad, 2008. "Some New Perspectives on India's Approach to Capital Account Liberalization," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 5(1), pages 125-178.
  4. Ajay Shah & Ila Patnaik, 2007. "India's Experience with Capital Flows: The Elusive Quest for a Sustainable Current Account Deficit," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 609-644 National Bureau of Economic Research, Inc.
  5. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
  6. Prasad, Eswar, 2009. "India's Approach to Capital Account Liberalization," IZA Discussion Papers 3927, Institute for the Study of Labor (IZA).
  7. Eswar S. Prasad, 2009. "India’s Approach to Capital Account Liberalization," Working Papers id:2043, eSocialSciences.
  8. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," Journal of Finance, American Finance Association, vol. 59(6), pages 2451-2487, December.
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