From fixed to flexible exchange rates: the case of india

Ranajoy Bhattacharyya

MPRA Paper from University Library of Munich, Germany

Abstract: The Indian Government changed its exchange rate regime quite a number of times in the first half of the 1990s. From a more or less a fixed exchange rate regime upto early 1992 the exchange rate was fully convertible in the current account by 1995. Between 1990 and 1995 there was a period when the exchange rate was operating under the liberalised exchange rate management system, a period when the rupee was fully convertible in the trade account but not the current account and a period when there was full convertibility in the current account. This paper takes a simple empirical look at the nominal exchange rate during the period of economic liberalization. The objective of this paper is to analize whether there were clear structural breaks at the level in the periods when the regimes changed. This paper suggests that neither the introduction of LERMS nor the introduction of full convertibility in the current account had any significant effect on the exchange rate. The exchange rate was on the other hand fully adjusted by the policies taken before them. The two policies crucial in this regard were the devaluation of July, 1991 and the trade account convertibility of February, 1993. Once these policies were undertaken the actual policy announcements were simply formal in nature.

Keywords: Exchange rate; Liberalization; India (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2004-07-16, Revised 2011-05-18
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