MACROECONOMICS OF CAPITAL ACCOUNT CONVERTIBILITY

This paper examines the dynamic interactions between money, inflation, reserves, interest rates and growth within the context of financial o penness; and formalises the relationships between monetary and exchang e rate policy to highlight appropriate macro-economic management durin g the process of financial opening. The model is then applied in the c urrent Indian context to evaluate some of the policy recommendations o f the Committee on Capital Account Convertibility (CAC). The results i ndicate the urgent need to slow-down the pace of CAC as well as to re- compute the preconditions for CAC, before we end up as one more casual ty of the currency crisis.