Foreign Exchange Intervention Under the Integrated Policy Framework: The Case of India

Jesper Lindé, Patrick Schneider, Nujin Suphaphiphat and Hou Wang

No 2024/236, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the effectiveness of foreign exchange intervention (FXI) in mitigating economic and financial shocks in India by applying the Integrated Policy Framework (IPF). It highlights how FXI can be a complementary tool in mitigating the tradeoff between output and inflation, specifically under large economic shocks amid temporarily shallow FX markets. The paper indicates that while FXI can soften adverse impacts on domestic demand and output during severe risk-off shocks, its benefits under normal conditions with liquid FX markets are limited.

Keywords: Integrated policy framework; foreign exchange intervention; risk-off shocks; EM FX intervention proxy; RBI FX intervention; FX Market development; OTC FX turnover; rate Policy; Currency markets; Inflation; Central bank policy rate; Global (search for similar items in EconPapers)
Pages: 32
Date: 2024-11-15
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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