EconPapers    
Economics at your fingertips  
 

Indian Capital Control Liberalization: Evidence from NDF Markets

Michael Hutchison (), Jake Kendall (), Gurnain Pasricha () and Nirvikar Singh ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the extent to which the effectiveness of capital controls in India have changed over time. We begin by calculating deviations from covered interest parity utilizing data from the 3-month offshore non-deliverable rupiah forward (NDF) market. Then, using the self-exciting threshold autoregression methodology, we estimate a no-arbitrage band whose boundaries are determined by transactions costs and by the effectiveness of capital controls. Inside the bands, small deviations from CIP follow a random walk process. Outside the bands, profitable arbitrage opportunities exist and we estimate an adjustment process back towards the boundaries. We identify three distinct periods, and estimate the model over each sub-sample in order to capture the de facto effect of changes in capital controls over time. We find that de facto capital control barriers: (1) are asymmetric over inflows and outflows, (2) have changed over time from primarily restricting outflows to effectively restricting inflows; (3) arbitrage activity closes deviations from CIP when the threshold boundaries are exceeded in all sub-samples. In recent years, capital controls have been more symmetric over capital inflows and outflows and the deviations from CIP outside the boundaries are closed more quickly.

Keywords: capital controls; India; arbitrage; non-deliverable forward markets; covered interest parity; self-exciting autoregressive threshold model (search for similar items in EconPapers)
JEL-codes: F41 F36 (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/21771/1/MPRA_paper_21771.pdf original version (application/pdf)

Related works:
Working Paper: Indian Capital Control Liberalization: Evidence from NDF Markets (2009) Downloads
Working Paper: Indian capital control liberalization: Evidence from NDF markets (2009) Downloads
Working Paper: Indian Capital Control Liberalization: Evidence from NDF Markets (2009) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21771

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2020-09-11
Handle: RePEc:pra:mprapa:21771