Open-Economy Macro and Inflation Targeting: A Tutorial

Economic theory tells us that there should be at least as many instruments as there are targets. But the Reserve Bank of India does try to kill two birds with one stone: increasing interest rates so as to shoot down infl ationary expectations as well as bring capital into the country. This is poor macroeconomics. A comment that elaborates on Partha Sen's "India's Current Account Woes: An Attempt to Clarify" (EPW, 12 October 2013).