Foreign Exchange Intervention Under the Integrated Policy Framework: The Case of India

Volume/Issue: Volume 2024 Issue 236

Publication date: November 2024

ISBN: 9798400292903

$20.00

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Banks and Banking , Finance , Inflation , Economics- Macroeconomics , Exchange rates , Inflation , Central bank policy rate , Foreign exchange intervention , Currency markets , Global , Integrated policy framework , foreign exchange intervention , risk-off shocks

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Summary

This paper analyzes the effectiveness of foreign exchange intervention (FXI) in mitigating economic and financial shocks in India by applying the Integrated Policy Framework (IPF). It highlights how FXI can be a complementary tool in mitigating the tradeoff between output and inflation, specifically under large economic shocks amid temporarily shallow FX markets. The paper indicates that while FXI can soften adverse impacts on domestic demand and output during severe risk-off shocks, its benefits under normal conditions with liquid FX markets are limited.