We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Political Stability and the Effectiveness of Currency Based Macro Prudential Measures.
- Authors
Roy Trivedi, Smita
- Abstract
The use of multiple currency based macroprudential tools by Reserve Bank of India, India's central bank, has helped create resilience in the economy, especially during financial turmoil. However, in a democratic set-up like India, the analysis of capital based macroprudential reforms needs to incorporate the political stability, as there is increasing evidence that macroprudential policy effectiveness is closely linked to political conditions. This study incorporates the role of political stability is understanding the effectiveness of currency based macroprudential policies, by using the years of election as a proxy for political uncertainty. I develop an index of capital based macroprudential policies (CMPP) using the notifications on capital flows and risk management guidelines on foreign exchange exposures from Reserve Bank of India. Using a GARCH model, the impact of CMPP on the net capital inflows is analyzed for the period from January, 1997 to March, 2018. I find that while the presence of CMPP leads to a fall in capital flow volatility, such policies in the years of election are ineffective in curbing capital flow volatility. The paper adds to the increasing evidence coming in recent years of the link between political cycles, interest groups and macroprudential policies.
- Subjects
INDIA; POLITICAL stability; RESERVE Bank of India; CENTRAL banking industry; GARCH model; HARD currencies; CAPITAL movements; ELECTIONS
- Publication
Asia-Pacific Financial Markets, 2021, Vol 28, Issue 2, p319
- ISSN
1387-2834
- Publication type
Article
- DOI
10.1007/s10690-020-09323-3