Exchange rate regimes and inflation: Evidence from India
Exchange rate stability is crucial for inflation management as a stable rate is expected to reduce domestic inflation pressures through a `policy discipline effect'- restricting money supply growth, and a `credibility effect'- inducing higher money demand and reduced velocity of money. Alternatively, the impossibility trillema predicts that in the presence of an open capital account, a stable exchange rate may lead to lack of control on monetary policy and, hence, higher inflation. Using a monetary model of Inflation, this paper investigates the impact of the de facto stable exchange rate regime on inflation in India during different episodes of exchange rate stability. The results show that the impact of exchange rate regime on inflation is not visible in Indian case, which could be because of the offsetting sterilization policy undertaken by Reserve Bank of India (RBI) during expansionary money supply growth resulting from its large scale intervention to even out exchange rate volatility.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benigno, Pierpaolo & Missale, Alessandro, 2004.
"High public debt in currency crises: fundamentals versus signaling effects,"
Journal of International Money and Finance,
Elsevier, vol. 23(2), pages 165-188, March.
- Benigno, Pierpaolo & Missale, Alessandro, 2001. "High Public Debt in Currency Crises: Fundamentals versus Signalling Effects," CEPR Discussion Papers 2862, C.E.P.R. Discussion Papers.
- Robert J. Barro & David B. Gordon, 1983.
"Rules, Discretion and Reputation in a Model of Monetary Policy,"
NBER Working Papers
1079, National Bureau of Economic Research, Inc.
- Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
- Bleaney Michael & Francisco Manuela, 2007. "Exchange Rate Regimes, Inflation and Growth in Developing Countries -- An Assessment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-20, July.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2004.
"The Modern History of Exchange Rate Arrangements: A Reinterpretation,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 119(1), pages 1-48.
- Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
- Rudi Dornbusch, 2001.
"Fewer Monies, Better Monies,"
American Economic Review,
American Economic Association, vol. 91(2), pages 238-242, May.
- Domac, Ilker & Peters, Kyle & Yuzefovich, Yevgeny, 2001. "Does the exchange rate regime affect macroeconomic performance : evidence from transition economics," Policy Research Working Paper Series 2642, The World Bank.
- Coudert, Virginie & Dubert, Marc, 2005.
"Does exchange rate regime explain differences in economic results for Asian countries?,"
Journal of Asian Economics,
Elsevier, vol. 16(5), pages 874-895, October.
- Virginie Coudert & Marc Dubert, 2004. "Does Exchange Rate Regime Explain Differences in Economic Results for Asian Countries?," Working Papers 2004-05, CEPII research center.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Carmen M. Reinhart, 2000.
"Mirage of Floating Exchange Rates,"
American Economic Review,
American Economic Association, vol. 90(2), pages 65-70, May.
- Bailliu, Jeannine & Lafrance, Robert & Perrault, Jean-Francois, 2003.
"Does Exchange Rate Policy Matter for Growth?,"
Wiley Blackwell, vol. 6(3), pages 381-414, Winter.
- William Miles, 2008. "Exchange rates, inflation and growth in small, open economies: a difference-in-differences approach," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 341-348.
- Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
- Reinhart, Carmen & Calvo, Guillermo, 2001.
"Fixing for your life,"
13873, University Library of Munich, Germany.
- Michael Hutchison & Rajeswari Sengupta & Nirvikar Singh, 2012.
"India’s Trilemma: Financial Liberalisation, Exchange Rates and Monetary Policy,"
The World Economy,
Wiley Blackwell, vol. 35(1), pages 3-18, 01.
- Hutchison, Michael & Sengupta, Rajeswari & Singh, Nirvikar, 2010. "India’s trilemma: financial liberalization, exchange rates and monetary policy," MPRA Paper 25327, University Library of Munich, Germany.
- Paula Hernandez-Verme, 2004.
"Inflation, growth and exchange rate regimes in small open economies,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(4), pages 839-856, November.
- Hernandez-Verme, Paula, 2002. "Inflation, Growth and Exchange Rate Regimes in Small Open Economies," MPRA Paper 16699, University Library of Munich, Germany, revised Aug 2009.
- Velasco, Andres, 1996. "Fixed exchange rates: Credibility, flexibility and multiplicity," European Economic Review, Elsevier, vol. 40(3-5), pages 1023-1035, April.
When requesting a correction, please mention this item's handle: RePEc:npf:wpaper:14/130. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (S.Siva Chidambaram)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.