Capital Flows at Risk: India’s Experience

Silu Muduli, Harendra Behera and Michael Debabrata Patra

EconStor Open Access Articles and Book Chapters, 2022, vol. 76, issue 6, 73-88

Abstract: With the spate of emerging market crises since the 1990s and the experience with the global financial crisis and its aftermath, attention has turned from the benefits associated with capital flows to their consequences such as accentuating financial vulnerabilities, aggravating macroeconomic instability and spreading contagion. For India, portfolio flows are the most sensitive to shifts in risk sentiment globally and spillovers. Applying a capital flows at risk approach, it is observed that in an adverse scenario, potential portfolio outflows can average up to 3.2 per cent of GDP. In a black swan event comprising a combination of shocks, potential portfolio outflows can rise to 7.7 per cent of GDP, highlighting the need for maintaining liquid reserves to quell such potential bouts of instability.

Keywords: Capital flows; global risk aversion; capital flows at risk (search for similar items in EconPapers)
JEL-codes: B27 F32 F34 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:260522

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