What Caused the 1991 Currency Crisis in India?
October 1, 2000
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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
Pages:
27
Volume:
2000
DOI:
Issue:
157
Series:
Working Paper No. 2000/157
Stock No:
WPIEA1572000
ISBN:
9781451857481
ISSN:
1018-5941
