MONETARY POLICY, CAPITAL FLOWS, AND THE EXCHANGE RATE

Partha Sen
Additional contact information
Partha Sen: Department of Economics, Delhi School of Economics, Delhi, India

No 193, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: The use of monetary policy in India has been constrained by a loose fiscal policy and capital flows. Capital inflows have the potential to cause a Dutch Disease-type situation. The RBI has carried out sterilized intervention to prevent this. In spite of this, the trade balance and, more often than not, the current account continue to be in deficit. Thus the real exchange rate, in spite of the intervention, is inconsistent with external balance (defined as a manageable current account deficit). The problem of capital flows is a self-inflicted pain. The authorities could have kept a lid on capital flows, allowing only the most urgent inflows from a growth standpoint. It would have had a competitive edge in manufacturing. This would have allowed it to expand labor-intensive industry and help mitigate the massive poverty levels.

Pages: 30 pages
Date: 2010-12
New Economics Papers: this item is included in nep-cis, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.cdedse.org/pdf/work193.pdf
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cde:cdewps:193

Ordering information: This working paper can be ordered from
http://www.cdedse.org/

The price is free.

Access Statistics for this paper

More papers in Working papers from Centre for Development Economics, Delhi School of Economics Delhi 110 007. Contact information at EDIRC.
Bibliographic data for series maintained by Sanjeev Sharma ().