Some Implications of Real Exchange Rate Targeting in India

The paper examines some macroeconomic implications of exchange rate policy against the broader backdrop of structural adjustment programmes. In particular, the evolving implications for inflation and the real interest rate arising from short-run policies regarding vthe real exchange rate (RER) are analysed for the Indian economy, which is undergoingvcautious but substantial liberalisation of financial markets and the external sector. The paper also investigates the role of important macroeconomic (behavioural and policy) variables in explaining the long-run movements of the RER in Indi