tag:blogger.com,1999:blog-19649274.post115712232471460927..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: CAC-2 report has been releasedAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-19649274.post-1157562505785908112006-09-06T22:38:00.000+05:302006-09-06T22:38:00.000+05:30Ooops, the URL is this.Ooops, the URL is <A HREF="http://scholar.google.com/scholar?num=20&hl=en&lr=&safe=off&q=related:kfSWHfR93coJ:scholar.google.com/" REL="nofollow">this</A>.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-1157562466099476202006-09-06T22:37:00.000+05:302006-09-06T22:37:00.000+05:30The impossible trinity of open economy macroeconom...The impossible trinity of open economy macroeconomics asserts that you can't simultaneously have: a fixed exchange rate, an open capital account, and autonomy of monetary policy. If the capital account is open, and if you try to pursue a fixed exchange rate, then all of interest rate policy will get used up to merely defend the exchange rate.<BR/><BR/>In the limit - when you have a truly fixed rate and a truly open capital account - there is no doubt that the impossible trinity is a real constraint. What is fascinating is that it's also an interesting idea in the shades of gray that precede the extremes. Even if the capital account is not fully open, attempts at having exchange rate policy impede the flexibility of the country to have an autonomous monetary policy.<BR/><BR/>Example: In January 1998, RBI raised interest rates (200 bps on 16th) in defending an exchange rate. This was not a good piece of monetary policy from the viewpoint of a country where growth was slowing.<BR/><BR/>Example: In the post-2002 period, RBI was buying USD in preventing the INR from appreciating. This led to low interest rates in the local economy, at a time when the local economy was booming. The easy monetary policy of this period is arguably the deep source of the high inflation that we're seeing today.<BR/><BR/>To learn more, see Ila Patnaik's IPF article, http://scholar.google.com/scholar?num=20&hl=en&lr=&safe=off&q=related:kfSWHfR93coJ:scholar.google.com/Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.com