CAFIN publishes two new working papers

April 29, 2016

The Center for Analytical Finance (CAFIN) publishes two new working papers on the website.

Adding to the center's cutting-edge research is "Foreign Currency Borrowing by Indian Firms: Towards a New Policy Framework" by Ila Patnaik, Ajay Shah, and Nirvikar Singh. This is the 26th paper the center has published.

The abstract reads: "India has a complex multidimensional system of capital controls for foreign currency borrowing by firms. In this paper, we summarize existing regulations, review the outcomes and discuss areas of concern and recent policy changes. Unhedged foreign currency exposure for firms, the complexity and uncertainty in the policy framework as it has evolved, and questions about regulation making processes are highlighted. In an emerging economy with a managed exchange rate and incomplete markets, foreign currency borrowing poses systemic risks when left unhedged by large firms that constitute a significant part of GDP. We identify policy directions to help address these concerns." The working paper can be downloaded here.

"Systematic Monetary Policy and the Effects of Exchange Rate Shocks" by Orcan Cortuk and Mustafa Haluk Guler is the 27th paper the center has published. 

The abstract reads: "Exchange rate shocks generally induce an endogenous response of monetary policy. However, increasing in exchange rates generally result in a higher interest rate with lower growth (expectations). It is argued that important part of this contractionary effect rising from the endogenous response of monetary policy to the shock. We take this debate as our starting point and conduct a VAR analysis with Turkish data by decomposing the total effects of a given exogenous exchange rate shock into the portion attributable directly to the shock itself   and the part arising from the interest rate response to this shock. Due to endogenous response of monetary policy, rising interest rates is the main factor behind the lower growth and inflation. We find that half of the recessionary impact of an exchange rate shock results from the endogenous tightening of monetary policy." The working paper can be downloaded here.