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Why India choked when Lehman broke

  • Patnaik, Ila

    ()

    (National Institute of Public Finance and Policy)

  • Shah, Ajay

    ()

    (National Institute of Public Finance and Policy)

India has an elaborate system of capital controls which impede capital mobility and particularly short-term debt. Yet, when the global money market fell into turmoil after the bankruptcy of Lehman Brothers on 13/14 September 2008, the Indian money market immediately experienced considerable stress, and the operating procedures of monetary policy broke down. We suggest that Indian multinationals were using the global money market and were short of dollars on 15 September. They borrowed in India and took capital out of the country. We make three predictions that follow from this hypothesis, and nd that the evidence matches these predictions. This suggests an important role for Indian multinationals in India's evolution towards de facto convertibility.

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File URL: http://www.nipfp.org.in/working_paper/wp_2010_63.pdf
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Paper provided by National Institute of Public Finance and Policy in its series Working Papers with number 10/63.

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Length: 30
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:npf:wpaper:10/63
Note: Working Paper 63, 2010
Contact details of provider: Web page: http://www.nipfp.org.in

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  1. Demirbas, Dilek & Patnaik, Ila & Shah, Ajay, 2010. "Graduating to globalisation: A study of southern multinationals," Working Papers 10/65, National Institute of Public Finance and Policy.
  2. Prasad, Eswar, 2009. "India's Approach to Capital Account Liberalization," IZA Discussion Papers 3927, Institute for the Study of Labor (IZA).
  3. Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2003. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," NBER Working Papers 9715, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. Eswar S. Prasad, 2009. "India’s Approach to Capital Account Liberalization," Working Papers id:2043, eSocialSciences.
  7. Ajay Shah & Ila Patnaik, 2005. "India's Experience with Capital Flows: The Elusive Quest for a Sustainable Current Account Deficit," NBER Working Papers 11387, National Bureau of Economic Research, Inc.
  8. 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.
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