Why India choked when Lehman broke

Ila Patnaik and Ajay Shah

Working Papers from National Institute of Public Finance and Policy

Abstract: India has an elaborate system of capital controls which impede capital mobility and particularly short-term debt. Yet, when the global money market fell into turmoil after the bankruptcy of Lehman Brothers on 13/14 September 2008, the Indian money market immediately experienced considerable stress, and the operating procedures of monetary policy broke down. We suggest that Indian multinationals were using the global money market and were short of dollars on 15 September. They borrowed in India and took capital out of the country. We make three predictions that follow from this hypothesis, and nd that the evidence matches these predictions. This suggests an important role for Indian multinationals in India's evolution towards de facto convertibility.

Pages: 30
Date: 2010-01
New Economics Papers: this item is included in nep-cwa and nep-ifn
Note: Working Paper 63, 2010
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Citations: View citations in EconPapers (15)

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Working Paper: Why India Choked when Lehman Broke (2010)
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