01629pab a2200181 454500008004000000100002600040245006900066260000900135300001500144362001100159520112800170650001801298650002701316650002701343650001901370700002401389773003401413180718b2001   xxu||||| |||| 00| 0 eng d  aPattanaik, Sitikantha  aInterest rate defence of exchange rate: tale of the Indian rupee  c2001  ap.4418-428  a24 Nov  aWhile the rationale for raising the interest rate to defend an exchange rate under speculative attack is well grounded in economic and financial theories, empirical validation of the effectiveness of such a policy stance has generally been difficult and is shrouded with conflicting findings.  In India, besides forex market interventions and use of several administrative measures, the Reserve Bank of India has occasionally resorted to the high interest rate option during major episodes of significant pressures on the external value of the rupee.  An empirical assessment suggests that one standard deviation shock to the call rate leads to rupee appreciation in the very second month.  Similarly, for one standard deviation shock to net interventions, the exchange rate appreciates gradually by a few paise over five months.  The impulse response also suggests that in response to one standard deviation shock the exchange rate appreciates by about 8 paise in the second month, but subsequently the exchange rate depreciates gradually, more than offsetting the initial impact of the hike in interest rate. - Reproduced  aMoney - India  aExchange rates - India  aInterest rates - India  aInterest rates  aMitra, Arghya Kusum  aEconomic and Political Weekly