Foreign Capital, Inflation, Sterilization, Crowding-Out and Growth: Some Illustrative Models

UC Santa Cruz International Economics Working Paper No. 04-09

41 Pages Posted: 1 Aug 2004

See all articles by Nirvikar Singh

Nirvikar Singh

University of California, Santa Cruz

T. N. Srinivasan

Yale University - Economic Growth Center; Stanford Center for International Development (SCID) - Stanford Institute for Economic Policy Research (SIEPR)

Date Written: May 2004

Abstract

This paper discusses some puzzles in the contemporary macroeconomic scene in India, from the perspective of public finance and economic development. These include a fiscal deficit higher than it was during the 1991 crisis, but without a large current account deficit or rise in inflation or interest rates, a rising inflow of external capital, accompanied by the RBI's sterilizing these inflows and accumulating large reserves, even in the face of low inflation. We offer a critique of some previous analyses, and some models that are suggestive of how real and monetary factors might be integrated in providing a firmer grounding for the policy debates current in India.

Keywords: Foreign capital, sterilization, absorption, crowding out, inflation, growth

JEL Classification: F30, F41, F43, H62, O4

Suggested Citation

Singh, Nirvikar and Srinivasan, T. N., Foreign Capital, Inflation, Sterilization, Crowding-Out and Growth: Some Illustrative Models (May 2004). UC Santa Cruz International Economics Working Paper No. 04-09. Available at SSRN: https://ssrn.com/abstract=569421 or http://dx.doi.org/10.2139/ssrn.569421

Nirvikar Singh (Contact Author)

University of California, Santa Cruz ( email )

Department of Economics
E2 Building
Santa Cruz, CA 95064
United States
831-459-4093 (Phone)
831-459-5077 (Fax)

T. N. Srinivasan

Yale University - Economic Growth Center ( email )

Box 208269
New Haven, CT 06520-8269
United States
203-432-3630 (Phone)
203-432-3635 (Fax)

Stanford Center for International Development (SCID) - Stanford Institute for Economic Policy Research (SIEPR)

Stanford, CA 94305
United States

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