Challenges to Monetary Policy from Financial Globalization: The Case of India
IMF Working Papers, May 1, 2008
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Bibliographic details
- Authors: Ananthakrishnan Prasad, Charles Frederick Kramer, Hélène Poirson
- Published: May 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451869903.001
Overview
- Authors: Ananthakrishnan Prasad, Charles Frederick Kramer, Hélène Poirson
- Date: May 1, 2008
- This paper examines how India should adapt monetary policy amid ongoing financial globalization, prompted by a recent surge in capital inflows.
- The study documents India's degree of financial globalization in absolute terms and relative to emerging and developed countries.
- Central finding: despite a relatively low degree of openness, India's domestic monetary conditions are highly influenced by global factors.
Key findings
- India exhibits a relatively low degree of financial openness, yet global factors have a strong influence on domestic monetary conditions.
- No strong relationship is found between the degree of stability in monetary conditions and the broad monetary policy regime.
- Improvements in monetary operations and communication have helped stabilize broader monetary conditions; such improvements were sometimes prompted by a shift to an IT regime.
- Experience from countries that used non-standard instruments indicates that room to regulate capital flows effectively through capital controls diminishes as financial integration increases.
Policy implications and lessons for India
- Strengthen monetary operations and communication to stabilize broader monetary conditions; these reforms can be effective regardless of the broad monetary policy regime.
- Recognize that as financial integration increases, reliance on capital controls to regulate capital flows becomes less effective.
- Review cross-country experiences of adaptation to financial globalization to identify measures suited to India's context.
Subjects and keywords
- Subject: Banking, Capital inflows, Exchange rate arrangements, Exchange rates, Open market operations
- Keywords: capital account, exchange rate volatility, lower-than-average exchange market pressure, monetary management, money market, WP
IMF Working Papers. Challenges to Monetary Policy from Financial Globalization: The Case of India, by Ananthakrishnan Prasad, Charles Frederick Kramer, Hélène Poirson, May 1, 2008.
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