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Did the Indian capital controls work as a tool of macroeconomic policy?

Ila Patnaik () and Ajay Shah ()
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Ila Patnaik: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: In 2010 and 2011, there has been a fresh wave of interest in cap- ital controls. India is one of the few large countries with a complex system of capital controls, and hence offers an opportunity to assess the extent to which these help achieve goals of macroeconomic and fi- nancial policy. We find that the capital controls were associated with poor governance, were unable to sustain the erstwhile exchange rate regime, and did not support financial stability. India's experience is thus inconsistent with the revisionist view of capital controls. Macroe- conomic policy in India has moved away from the erstwhile strategies, towards greater exchange rate flexibility combined with capital ac- count liberalisation.

Keywords: Capital controls; Exchange rate regime; Monetary policy; Impossible trinity; Financial stability (search for similar items in EconPapers)
JEL-codes: F32 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
Date: 2011-04
Note: Working Paper 87, 2011
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