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Liberalization of capital inflows and the real exchange rate in India

Liberalization of capital inflows and the real exchange rate in India

a var analysis

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Published by Centre for Development Studies in Thiruvananthapuram, Kerala .
Written in

    Places:
  • India.
    • Subjects:
    • Capital movements -- India.,
    • Foreign exchange rates -- India.

    • Edition Notes

      StatementIndrani Chakraborty.
      SeriesWorking paper ;, no. 351, Working paper (Centre for Development Studies (Trivandrum (India)) ;, no. 351.
      ContributionsCentre for Development Studies (Trivandrum, India)
      Classifications
      LC ClassificationsMicrofiche 2005/60230 (H)
      The Physical Object
      FormatMicroform
      Pagination47 p.
      Number of Pages47
      ID Numbers
      Open LibraryOL3333025M
      LC Control Number2004312057

        This paper presents the research results on the impact of real effective exchange rate (REER) on Indian firm performance. The analysis is based on a multivariate regression model, for the time period from 1 Dec to 1 Dec for the top Indian firms of Bombay Stock Market. Our empirical analysis reveals that significant relationships between real effective exchange rate . Nominal Effective Exchange Rate (NEER) and Real Effective Exchange rate (REER) are used to find the volatility effect on private foreign capital inflows (FINV). The data for the study have been collected from the secondary source such asHandbook of Statistics in the Indian Economy, which is a publication of Reserve Bank of India.

      Capital flows and central banking: the Indian experience (英语) 摘要. Because of the steady liberalization of the capital account since the early s and increased financial integration of the Indian economy, capital flows to India have moved in tandem with broad global trends. Capital flows and central banking: the Indian experience (Английский) Аннотация. Because of the steady liberalization of the capital account since the early s and increased financial integration of the Indian economy, capital flows to India have moved in .

      Abstract. The extensive literature on capital controls and capital account liberalization in emerging market economies generally identifies two types of capital controls: first, targeted measures aimed at slowing the pace of short-term portfolio inflows and outflows; and second, pervasive restrictions on a broader range of external capital transactions. 2. private foreign capital inflows in the period and look into the performance of a few foreign companies that were set up in the same time period and draw conclusions about the policy directions. II. Review of Literature Indian policy makers have adopted a regulatory framework of private foreign capital in India since Independence (Dhar.


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Liberalization of capital inflows and the real exchange rate in India Download PDF EPUB FB2

Capital inflows on the real exchange rate in India during the liberalized regime beginning early nineties. Using the vector autoregression method, this paper specifically examines if the external shock generated by capital inflows led to appreciation in the real exchange rate as observed in the East Asian and Latin American countries in the ’s.

Indrani Chakraborty, "Liberalization of capital inflows and the real exchange rate in India: A VAR analysis," Centre for Development Studies, Trivendrum Working PapersCentre for Development Studies, Trivendrum, : RePEc:ind:cdswpp   Liberalisation of capital inflows and the real exchange rate in India: A VAR analysis (Working Paper No.

Thiruvananthapuram: Centre for Development Studies. Cited by: 1. real exchange rate in India for the period – to – The empirical results suggest that there is a strong case for further liberalization of foreign direct investment flows, while greater caution is need in liberalization of portfolio and debt creating flows.

The impact of the capital inflows on the domestic economy, which Author: Shashank Goel, V. Raveendra Saradhi.

¾ Due to higher capital inflows following capital convertibility, the appreciating real exchange rate would divert resources from tradable to non-tradable sectors (like construction, housing, hotels and tourism etc;) and this would happen in the face of rising external liabilities (i.e., the risk of the "Dutch disease effect").

2 Quirk (). The resulting capital inflows can cause the real exchange rate to appreciate. Although sterilization has been used to limit the inflationary impact of these inflows, it can increase the outstanding stock of government debt and drive up government borrowing costs.

Some countries have therefore tightened capital controls to limit capital inflows. Net inflows of private foreign capital, foreign currency assets, wholesale price index, money supply, real and nominal effective exchange rate and exports follows an I(1) process, current account balance is the only variable that follows I(0) process.

Cointegration test shows the presence of long run relationship between a few pair of variables. Third, capital account liberalization is highly related to consumption and investment booms, and subsequent appreciation of nominal and real exchange rates, which leads to the current account worsening.

Finally, there is strong evidence of sterilized foreign exchange market intervention in response to capital inflows. positively affect real exchange rate; while terms of trade, capital inflows, and capital accumulations have significant negative impacts on real exchange rate.

Key words: Real Exchange rate, Trade Openness, Floating Exchange Rate JEL Classification: C22, F41 1. Introduction Most of the studies that analyze balance of payments position of a. Capital flows and central banking: the Indian experience (Inglês) Resumo.

Because of the steady liberalization of the capital account since the early s and increased financial integration of the Indian economy, capital flows to India have moved in tandem with broad global trends. inflows of capital,exchange rates and balance of payments: the post-liberalisation experience of india Article (PDF Available) in The Asian economic review 55(2) August with 72 Reads.

capital, accompanied by a shift to a more liberalised exchange rate regime. India too adopted such policies, even though exchange rate liberalisation did not involve the transition to full convertibility on the capital account.

Chart 1: FII Investmens in India USD mn 1 1, 1, 2, 1, 2, 1, 1, 10, 8, 4, asymmetric over inflows and outflows, (2) have changed over time from primarily account openness since the advent of India’s capital control liberalisation.

Pasricha (), investigating interest rate differentials, changes in exchange rates or exchange rate regimes. Also active in the NDF markets are. the appreciation of the real exchange rate to periods of heavy capital inflows.

We show that domestic real interest rates have played an important role in explaining the recent behavior of the real exchange rate. In particular, we trace the rise in domestic nominal and real interest rates to.

Particularly in bank loan flows, a strong relationship with an expected sign is found only between real exchange rates and capital outflows, i.e. a 1% increase of bank loan outflows leads to a % depreciation in the real exchange rate. In contrast, capital inflows of bank loans are associated with a real depreciation of fundamentals and the real exchange rate (RER) in India consequent to the liberalization of the capital account in s for the period – to – using the Autoregressive Distributed Lag approach to cointegration.

Most studies in the literature emphasize the role. liberalization into India are very significant. It is argument that whether capital flows capital inflows on the real exchange rate in some Latin American countries. The study. Trade liberalization, fiscal adjustment, and exchange rate policy in India (English) Abstract.

The authors investigate the impact of India's program of economic stabilization and trade liberalization launched ina year when the country was in the throes of a foreign exchange. The San Francisco Fed’s report not only finds that capital account liberalization does not make countries more vulnerable to exchange rate instability, but it also further supports previous studies that question how effective capital controls are in protecting emerging market economies from speculative attacks (Glick and Hutchinson, ).

Contrary to a common perception, India has steadily liberalized its capital account since ; while the pace of incremental liberalization has been conditioned by the capital flow cycle. The pace of liberalization of inflows slowed during the capital surge episode ofwhile outflows were liberalized rapidly.

For much of the last half-century, economic experts have argued that when capital flows freely across borders, investment flourishes and international trade expands, bringing prosperity to many countries.

1 Responding to these economic arguments, many countries have progressively dismantled capital controls. India, however, is an unusual case: it has intermittently used a wide range of capital.The factors that determine foreign direct investment (FDI) are important to policy-makers, investors, the banking industry and the public at large.

FDI in Ghana has received increased attention in recent times because its relevance in the Ghanaian economy is too critical to gloss over. The purpose of this paper is to examine the determinants of FDI in Ghana between the .This chapter looks at the transition from the acceptance at Bretton Woods of capital account management as a normal policy instrument to the liberalization of the capital account, first in developed countries and later in developing countries.

It then analyses the risks of capital account liberalization, particularly the relation between capital account liberalization and the .