East Asian Crisis and Currency Pressure: The Case of India

This paper tests and explains the impact of the East Asian crisis on India’s exchange rate. To examine this, an index of currency pressure is estimated for four countries -- Thailand, South Korea, Malaysia and India covering the period just before, during and after the crisis. A contagion model with panel data for these four countries is also estimated during the crisis period. On the basis of the panel data estimates, the paper concludes that while India experienced some effects of the crisis, these were not substantive. This is partly attributed to the role of stabilisation policy in India that included intervention in the foreign exchange market by the central bank, phased tightening of monetary policy and restrictions on capital flows.