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Financial Stability Reports (FSR) of the Reserve Bank of India (RBI), March and December, 2010: A Critical Review with a Long-term Perspective

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  • Gurbachan Singh

Abstract

This article considers two aspects in the Reserve Bank of India’s (RBI) first set of reports on financial stability. First, the reports fear sudden and large flows of foreign capital, and rightly so. However, the focus of policy makers has been on foreign exchange reserves and on capital controls to some extent. This article explores the use of an additional instrument—the international credit line. Second, this article reconsiders the reasons for the correlation between stock prices and capital flows. There is some misunderstanding in the interpretation of the evidence. Finally, it is suggested that the government should gradually move in the direction of ‘prescription financial products’ to contain excessive volatility in financial markets. JEL Classification : F33, F41 and G01

Suggested Citation

  • Gurbachan Singh, 2012. "Financial Stability Reports (FSR) of the Reserve Bank of India (RBI), March and December, 2010: A Critical Review with a Long-term Perspective," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 6(1), pages 27-46, February.
    • Handle: RePEc:sae:mareco:v:6:y:2012:i:1:p:27-46
    DOI: 10.1177/097380101100600102
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    More about this item

    Keywords

    International Capital Flows; Credit Line; Foreign Exchange Reserves; Capital Controls; Stock Market Volatility;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises

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