What Caused the 1991 Currency Crisis in India?

IMF Staff Papers, Vol. 49, No. 3, pp. 395-425, 2002

Posted: 16 Feb 2004

See all articles by Valerie Cerra

Valerie Cerra

International Monetary Fund (IMF)

Sweta C. Saxena

Bank for International Settlements (BIS) - Monetary and Economic Department

Abstract

Which model best explains the 1991 currency crisis in India? Did real overvaluation contribute to the crisis? This paper seeks the answers through error correction models and by constructing the equilibrium real exchange rate using a technique developed by Gonzalo and Granger (1995). The evidence indicates that overvaluation as well as current account deficits and investor confidence 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.

Keywords: India, Currency Crisis, Equilibrium exchange rate, error correction model, Gonzalo-Granger decomposition

JEL Classification: F31, F32, F47

Suggested Citation

Cerra, Valerie and Saxena, Sweta Chaman, What Caused the 1991 Currency Crisis in India?. IMF Staff Papers, Vol. 49, No. 3, pp. 395-425, 2002, Available at SSRN: https://ssrn.com/abstract=500602

Valerie Cerra

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8596 (Phone)

Sweta Chaman Saxena (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
2,958
PlumX Metrics