Persistent deviation of real exchange rates from purchasing power parity (PPP) values is a puzzle, since nominal shocks, which cause such deviation, are expected to have only short-run effects. If some goods are non-traded, Balassa Samuelson (BS) showed how such deviations occur and explain why...

Estimates suggest that Indian aggregate supply is elastic but subject to upward shocks. If supply shocksmake a high persistent contribution to inflation, it implies second round pass through is occurring, implying growth has reached its potential. This measure of potential growth draws on both...

To understand the appropriate regulatory response to the crisis, we start from the basic market failures that justify regulation in financial markets. Neglecting these first principles contributed to the market and regulatory failures. Regulation that induces better outcomes through creating...

Since a crisis is a shock impinging on a system, the response can be used to deduce aspects of the system's structure. Analysis of the crisis and recovery suggests aggregate supply in India is elastic but subject to upward shocks. This has implications for the exit and for fiscal consolidation....

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...

The paper defines financial liberalization, distinguishing between liberalization of domestic financial markets and capital account convertibility. It then examines the stages and the strategy of Indian financial reform. The Indian strategy followed a well thought out sequence whereby full...

After the global financial crisis, India was exposed to many external shocks from commodity prices and foreign capital flows. Although capital flow fluctuations were largely due to global risk-on risk-off factors, a widening current account deficit (CAD) contributed to India's vulnerability to...