Foreign Capital, Inflation, Sterilisation, Crowding Out and Growth

Much of the policy debate on India's fiscal deficits, exchange rate management and reserves management policies is either model-free or uses ad hoc models. In order to understand some of the puzzles in India's current macroeconomic situation, a coherent intertemporal model is required, in which both private and public savings and investment behaviour are behaviourally specified, and growth, government deficits and other macroeconomic variables are determined in equilibrium. The goal here is to provide some starting points for further theoretical analysis, which could then be used for empirical work that could have policy relevance.