Evolution of India's exchange rate regime

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dc.contributor.author Goyal, Ashima
dc.date.accessioned 2012-06-02T06:00:21Z
dc.date.available 2012-06-02T06:00:21Z
dc.date.issued 2012-06-02
dc.identifier.uri http://hdl.handle.net/2275/128
dc.description.abstract The paper analyzes the changing INR trends over the reform period, in the context of fundamental determinants of exchange rates. In the early reform years the chief concern was to limit appreciation from inflows, and from higher domestic inflation, given the trade deficit. So short-term nominal depreciation maintained a long-term real fix. But with two-way nominal variation, more objectives can be accommodated. We ask how the exchange rate contributed to three possible policy objectives—maintaining a real competitive exchange rate, neutralizing inflationary oil shocks, deepening foreign exchange markets and encouraging hedging. Depreciation allowed just before oil prices crashed compromised the second objective. Inadequate commitment to two-way movement, prior to the crisis, induced firms to take large currency exposures based on expected appreciation. After the crisis, capital flows were allowed to drive the exchange rate, aggravating inflation and acting against macro stabilization. Markets need some guidance to achieve policy objectives. en_US
dc.language.iso en en_US
dc.relation.ispartofseries WP;WP-2010-024
dc.subject Exchange rate regimes en_US
dc.subject Stabilization en_US
dc.subject Inflation en_US
dc.subject Markets en_US
dc.subject Capital flows en_US
dc.subject Hedging en_US
dc.title Evolution of India's exchange rate regime en_US
dc.type Working Paper en_US

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