Do Capital Controls Matter in India?

Renu Kohli () and Agnes Belaisch
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Agnes Belaisch: -

India Policy Forum, 2012, vol. 8, issue 1, 225-276

Keywords: India’s capital account liberalization began 20 years ago; but a lot of controls still remain. The central bank’s strategy has been to open financial markets cautiously while ensuring risk management systems and competencies are in place to ensure the system’s resilience to foreign shocks. Has the regulation insulated Indian markets from global shocks? This paper estimates uncovered interest parity relationships and finds that capital controls continue to provide a certain degree of autonomy to the central bank when setting policy rates. Vector Autoregressive (VAR) models are constructed to derive impulse response functions illustrating the transmission of a shock to foreign capital inflows through the different segments of India’s financial sector. To provide a sense of the complexity of the regulation on capital account transactions; the paper provides a primer on the controls in place; which it uses to identify coefficient restrictions in the Structural VAR model (search for similar items in EconPapers)
JEL-codes: D24 F16 J5 J8 K31 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:nca:ncaerj:v:8:y:2012:i:2012-1:p:225-276

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