Radhika Pandey

Motivations for Capital Controls and Their Effectiveness

We assess the motivations for changing capital controls and their effectiveness in India, a country with extensive and long-standing controls. We focus on the controls on foreign borrowing that can, in principle, be motivated by macroprudential concerns. We construct a fine-grained data set on capital control actions on foreign borrowing in India. Using event study methodology, we assess the factors that influence these capital control actions, the main factor being the exchange rate. Capital controls are tightened after appreciation, and eased after depreciation, of the exchange rate. Macroprudential concerns, measured by variables that capture systemic risk buildups, do not seem to be a factor shaping the use of capital controls. To assess the impact of controls, we use both event study and propensity score matching methodologies. Event study methodology suggests no impact of capital controls on most variables evaluated, but reveals limited evidence that capital controls relieve currency pressures in the short term. However, even this limited evidence disappears once selection bias is controlled for.

Dating business cycles in India

This paper presents a chronology of Indian business cycle in the post-reform period. The period before reforms primarily saw monsoon cycles. We find three episodes of recession in the post-reform period: 1999Q4 to 2003Q1, 2007Q2 to 2009Q3, and 2011Q2 to 2012Q4. We find that the average duration of expansion is 12 quarters and the average duration of recession is 9 quarters. The diversity in duration of expansion is seen to be 0.34 while the diversity in duration of recession is 0.31. We find that the amplitude of recession is relatively more diverse at 0.45 while the diversity in amplitude of expansion is 0.38.

Business Cycle Measurement in India

This paper presents the business cycle chronology for the Indian economy. Two distinct phases are analysed. The pre-1991 period when the cycles were mainly driven by monsoon shocks. The post 1991 phase where we see the emergence of conventional business cycles driven by investment-inventory fluctuations. The paper sheds light on the economic conditions that shaped the nature of cycles in the two phases. The concluding section of the paper presents an overview of the economic conditions post 2012.