Three new papers

The first is an entry titled India which is forthcoming in Elseviers Encyclopaedia of Financial Globalisation, edited by Gerard Caprio. It's our attempt at a bird's eye view of what is known, and not known, about India's financial globalisation.

The second is a treatment of exchange rates and monetary policy and inflation. There are two well understood phenomena: the `exchange rate passthrough' (or how prices in India go up when the rupee depreciates) and the `monetary policy transmission' (or how prices in India go down when RBI raises rates). This paper views these two in a unified fashion. The main finding is that the channel through which monetary tightening influences domestic prices is mainly through the consequent exchange rate appreciation.

The third is about explaining the process of firms becoming multinationals. The conventional story told (the Helpman-Melitz-Yeaple model) is one where firms self-select themselves to become MNCs, where more efficient firms export and the most efficient firms become MNCs. This story is well suited for manufacturing, where costs of transportation are important, where it's efficient for an Indian firm to make widgets in the UK so as to avoid the costs of transportation of shipping to the UK. But this story does not help us think about services which are `weightless'. We think we have a story which helps us understand MNCs in services, and when we go test this with data for Indian software companies, it seems to work. Our approach yields the opposite prediction: that less productive software companies are more likely to become MNCs.

Our stock of papers is at: http://macrofinance.nipfp.org.in/papers.html.