Abstract:   

  We examine the solvency of India’s current account (CA) in the post-liberalization period using intertemporal optimization approach to the CA. Using quarterly data ranging from 1996Q1  to2014Q2, we estimate a benchmark consumption-smoothing model and an extended model that incorporates external shocks. Overall, we find that the predicted optimal CA in both the models can track the actual CA movements and the extended model performs better over the benchmark model. Further, we also find that the optimal CA is more volatile than the actual CA, which implies that the capital flows have been less than optimal, and thus makes an interesting case for further liberalization of the capital account. Our findings suggest that policies aimed at further liberalization of capital flows will allow larger CA deficits to achieve higher economic growth since it will help agents to further smoothen their consumption without worrying about risks associated with insolvency.

Bio:

      Dr. Bhavesh Garg is a Ph.D. in Economics from the IIT Hyderabad. His research interests are Open Economy Macroeconomics and Time-series econometrics. His doctoral work is published in reputed international journals such as Applied Economics, Journal of Asian Economics, and Applied Economics Letters. During his Ph.D., he was a visiting research scholar at IGIDR Mumbai from May-August 2016 and a visiting Fellow at Institute of Economic Growth, Delhi. He is a recipient of the prestigious Prof. A L Nagar Visiting Fellowship 2016 instituted by The Indian Econometric Society and has received best paper awards at conferences in IISc Bangalore and IIT Bombay. He has also written articles on contemporary economic issues in popular newspapers and international refereed blogs. His complete profile can be accessed here <https://sites.google.com/>.