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Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?

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  • Yanamandra, Venkataramana

Abstract

Absence of inflation hedges and lack of inflation indexation in India make the society very sensitive to inflationary pressures. A potential source of such pressures that is often mentioned is the depreciation of the Indian rupee which has occurred over the last few years. This study computes the exchange rate pass-through into import prices of India at the aggregate level for the period 2003m1 to 2013m3 using both trade-weighted and bilateral USD exchange rates. The study also examines the asymmetry and non-linearity in the exchange rate pass-through at the aggregate level. The results suggest that there is more than complete exchange rate pass-through into Indian import prices in the short run and even higher pass-through in the long run, indicating the inertial effect of rising prices. There is also evidence of non-linearity in exchange rate pass-through, in terms of whether the rupee is appreciating or depreciating, as well as in terms of whether there are small or large changes in the rupee value.

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  • Yanamandra, Venkataramana, 2015. "Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 57-68.
    • Handle: RePEc:eee:ecanpo:v:47:y:2015:i:c:p:57-68
    DOI: 10.1016/j.eap.2015.07.004
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    10. Prashant Parab, 2022. "Exchange rate pass-through in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-012, Indira Gandhi Institute of Development Research, Mumbai, India.
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    13. Ghazali, Ummu & Masih, Mansur, 2018. "Should Malaysia depreciate her exchange rate ?," MPRA Paper 108481, University Library of Munich, Germany.
    14. Behera, Harendra & Wahi, Garima & Kapur, Muneesh, 2018. "Phillips curve relationship in an emerging economy: Evidence from India," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 116-126.
    15. Mehmet Balcilar & David Roubaud & Ojonugwa Usman & Mark E. Wohar, 2019. "Testing the Asymmetric Effects of Exchange Rate and Oil Price Pass-Through in BRICS Countries: Does the state of the economy matter?," Working Papers 15-49, Eastern Mediterranean University, Department of Economics.
    16. Kassi, Diby François & Sun, Gang & Ding, Ning & Rathnayake, Dilesha Nawadali & Assamoi, Guy Roland, 2019. "Asymmetry in exchange rate pass-through to consumer prices: Evidence from emerging and developing Asian countries," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 357-372.
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    18. Rebeca Jiménez‐Rodríguez & Amalia Morales‐Zumaquero, 2020. "BRICS: How important is the exchange rate pass‐through?," The World Economy, Wiley Blackwell, vol. 43(3), pages 781-793, March.
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    22. Ibrahim Abdulhamid Danlami, 2020. "Revisiting the West African Commonwealth Countries’ Exchange Rate Pass-Through to Inflation," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(1), pages 70-77, March.
    23. Sengupta, Darpajit & Sinha Roy, Saikat, 2020. "Exchange Rate Pass-through: An exploration on India’s automobile sector," MPRA Paper 102533, University Library of Munich, Germany.

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    More about this item

    Keywords

    Exchange rate pass-through; Non-linearity; Inflation; India;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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