Book review: Exchange rate policy and modelling in India

This is a book which should be read by people interested in Indian economy and its exchange rate policy.

Written by Prof. Pami Dua of DSE and Rajiv Ranjan of RBI, the book gives a good and detailed account of how our exchange rate policy has evolved over the years.

Exchange rate fluctuations affect the value of international investment portfolios, competitiveness of exports and imports, value of international reserves, currency value of debt payments, and the cost to tourists in terms of the value of their currency. Movements in exchange rates, therefore, have significant implications for the economy’s business cycle, trade, and capital flows. This book provides a comprehensive analysis of the foreign exchange market in India in terms of participants, instruments and the trading platform, as also turnover and forward premia. The book covers four broad areas: (i) various facets of economic policy with respect to the exchange rate; (ii) the recent global financial crisis and the role of exchange rates therein; (iii) the pattern of capital flows and capital account liberalization; and (iv) modelling and forecasting the exchange rate. The authors contextualize the evolution of the Indian foreign exchange market from a highly regulated market to a deep, liquid, and efficient market in the 1990s, and focus on how large capital flows have impacted the exchange rate policy. More important, they develop a model for the rupee-dollar exchange rate taking into account variables from monetary and micro structure models as well as other variables such as central bank intervention. 
In particular, the book has a great chronological account of several reforms and changes wrt exchange rate management. In 1990s, India faced series of exchange rate shocks and came out with measures to restore sanity. Not surprisingly, very similar measures were used in 2013 as well which got enormous hype and publicity. In India macro space, we hardly have any discussions on history making it very easy to make all old things appear as new and gain policy  mileage.
Nice stuff mostly in English which is a feat by itself..
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