Economics at your fingertips  

Capital account liberalisation in India: Volatility of capital flows and selective policy issues

Shivangi Jaiswal and Dr. N. Kubendran
Additional contact information
Shivangi Jaiswal: NMIMS University, Bangalore, India
Dr. N. Kubendran: NMIMS University Bangalore, India

Theoretical and Applied Economics, 2021, vol. XXVIII, issue 1(626), Spring, 201-218

Abstract: This paper attempts to investigate the relationship between capital account openness and occurrence of financial risks in India by employing finite distributed lag model. Annual data from 1979 to 2018 on real effective exchange rate, real interest rate, international reserve and net capital have been used to compute Exchange Market Pressure index and the degree of capital account liberalization. The study finds that opening up of capital account will have harmful effects on the financial stability of the country in the initial years, say a year or two. However, the degree of financial risks will go down in later years by influencing capital inflows. Finally, the study has suggested that the Reserve Bank of India needs to take precautionary measures to mitigate short term volatility of capital flows before choosing fuller capital account convertibility.

Keywords: capital account liberalization; financial stability; real exchange rate; real interest rate; foreign exchange reserve; finite distributed lag model. (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

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:

Access Statistics for this article

Theoretical and Applied Economics is currently edited by Marin Dinu

More articles in Theoretical and Applied Economics from Asociatia Generala a Economistilor din Romania - AGER Contact information at EDIRC.
Bibliographic data for series maintained by Marin Dinu ().

Page updated 2021-12-31
Handle: RePEc:agr:journl:v:1(626):y:2021:i:1(626):p:201-218