For a few years after the 1991 crisis the RBI continued to maintain fixed a exchange...

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For a few years after the 1991 crisis the RBI continued to maintain fixed a exchange rate between the rupee and the US dollar. That policy was subsequently dropped, however, and India now pursues inflation target with a flexible exchange rate. a. Explain why the US dollar is a poor anchor currency for India's economy. USD might be a good anchor currency for another country, but not for India. b. Explain why a big economy like India, when choosing a nominal anchor, would prefer inflation to a fixed exchange rate. Be sure to define a nominal anchor. For a few years after the 1991 crisis the RBI continued to maintain fixed a exchange rate between the rupee and the US dollar. That policy was subsequently dropped, however, and India now pursues inflation target with a flexible exchange rate. a. Explain why the US dollar is a poor anchor currency for India's economy. USD might be a good anchor currency for another country, but not for India. b. Explain why a big economy like India, when choosing a nominal anchor, would prefer inflation to a fixed exchange rate. Be sure to define a nominal anchor.

Answer rating: 100% (QA)

a The US dollar may be considered a poor anchor currency for Indias economy for several reasons i Divergent Economic Conditions The US and Indian economies often experience different economic cycles a... View the full answer