Why India Choked when Lehman Broke

Published By: NIPFP on eSS | Published Date: January, 11 , 2010

India has an elaborate system of capital controls which impede cap- ital mobility and particularly short-term debt. Yet, when the global money market fell into turmoil after the bankruptcy of Lehman Broth- ers on 13/14 September 2008, the Indian money market immediately experienced considerable stress, and the operating procedures of mon- etary policy broke down. It is suggested that Indian multinationals were using the global money market and were short of dollars on 15 Septem- ber. They borrowed in India and took capital out of the country. Three predictions are made that follow from this hypothesis, and find that the evidence matches these predictions. This suggests an important role for Indian multinationals in India's evolution towards de facto convertibility [NIPFP WP No. 2010-63].

Author(s): Ajay Shah, Ila Patnaik | Posted on: Jan 19, 2010 | Views(1548) | Download (806)


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