Dr Balaga Mohana Rao, Assistant Professor from the Department of Economics has been awarded the best PhD thesis award in the 59th IIT Bombay convocation held on August 07, 2021. The thesis titled The Early Warnings of the Impending Currency Crises and the Ensuing Macroeconomic Costs aims to develop an Early Warning System to identify the Currency Crises that would help in preventing an impending crisis and also in mitigating the devastating aftermath effects if that occurred.
The financial crises have enthused a huge theoretical and empirical debate in current times due to their recurrent nature in the history of economics. To highlight the importance of an economic crisis among various sections, Kaminsky et al. (1998) quote Kindleberger (1978) saying that academics are interested in a crisis as they have had a history of fascination for the crises, policymakers are interested because they want to prevent the crisis, and financial market participants are interested as they can make money out of it. The financial crises can be divided into two broad categories—currency and sudden stop crises, and debt and banking crises. The currency crises have not only swept away Argentina (2001), Brazil (1998–1999), Latin America (the 1980s), Russia (1998), Southeast Asia (1997) and UK (1992) (to name a few) but they also have caused serious economic adversities to India and BRICS in the recent past. A currency crisis encompasses one of the following four features or a combination of them owing to a speculative attack—both successful and unsuccessful attacks—on a currency: A sharp depreciation of a currency (possibly followed by devaluation) and/or huge depletion of foreign exchange reserves or an increase in interest rates by the central bank or imposing restrictions on capital flows. In this context, Dr Balaga Mohana Rao’s thesis focuses on developing an early warning system to identify the impending crises, finding the common determinants of currency crises and the aftermath effects on macroeconomic indicators.
“One may wonder why the crisis should be prevented or mitigated. The reason is that a full-blown crisis will not be just confined to the foreign exchange market or some other segment, but it will affect the whole economy” Dr Balaga said. He plans to extend his PhD work on Currency Crises and see it in the context of the International Price System.