What Caused the 1991 Currency Crisis in India?

October 1, 2000

Preview Citation

Format: Chicago

Sweta Chaman Saxena, and Valerie Cerra. What Caused the 1991 Currency Crisis in India?, (USA: International Monetary Fund, 2000) accessed October 6, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Did real overvaluation contribute to the 1991 currency crisis in India? This paper seeks an answer by constructing the equilibrium real exchange rate, using an error correction model and a technique developed by Gonzalo and Granger (1995). The results are affirmative and the evidence indicates that current account deficits and investor confidence also played significant roles in the sharp exchange rate depreciation. The ECM model is supported by superior out-of-sample forecast performance versus a random walk model.

Subject: Balance of payments, Current account, Current account deficits, Exchange rates, Foreign exchange, Real effective exchange rates, Real exchange rates

Keywords: Currency Crisis, Current account, Current account deficits, Equilibrium exchange rate, Error Correction Model, Exchange rate, Exchange rate depreciation, Exchange rate misalignment, Exchange rates, Gonzalo-Granger decomposition, India, Indian rupee, Middle East, Price level, Real effective exchange rates, Real exchange rates, Terms of trade, Widening current account imbalance, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/157
Stock No:

WPIEA1572000
ISBN:

9781451857481
ISSN:

1018-5941

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