Causal relationships between the capital account and the current account: an empirical investigation from India

Garg, B and K P, Prabheesh (2015) Causal relationships between the capital account and the current account: an empirical investigation from India. Applied Economics Letters, 22 (6). pp. 446-450. ISSN 1350-4851 (In Press)

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Abstract

This article provides an empirical investigation of the causal relationship between the current account (CA) and the capital account (KA) in the case of Indian economy. The results indicate the nonexistence of causal relationship between the CA and the KA. Furthermore, we examine the causal relations between the components of the KA and the CA along with exchange rate as the linking factor between them. The causal findings, in the above mentioned case, show different results. Our finding suggests that there exist a causal relationship from Nondebt flows to the CA via the real effective exchange rate. This implies that decomposition of the KA helps in identifying the source of flows that drives the CA the most. The results also indicate that volatile capital flows may deteriorate the CA balance and therefore, emphasis should be laid on improving the soundness of the financial sector before moving towards the full KA convertibility.

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IITH Creators:
IITH CreatorsORCiD
K P, PrabheeshUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: balance of payments; capital account; current account; granger causality test
Subjects: Social sciences > Business Finance
Divisions: Department of Liberal Arts
Depositing User: Team Library
Date Deposited: 19 Nov 2014 10:49
Last Modified: 28 Aug 2017 09:57
URI: http://raiith.iith.ac.in/id/eprint/860
Publisher URL: https://doi.org/10.1080/13504851.2014.948669
OA policy: http://www.sherpa.ac.uk/romeo/issn/1350-4851/
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