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Exchange Rate Pass-through

Author

Listed:
  • Aruna Kumar Dash

    (Aruna Kumar Dash (corresponding author) is working as an analyst in a multinational company. Email: arunds_in@yahoo.com)

  • V. Narasimhan

    (V. Narasimhan is Professor, Department of Economics, University of Hyderabad, Central University, Hyderabad 500046, India. Email: vnss@uohyd.ernet.in)

Abstract

This article investigates the exchange rate pass-through for Indian export and import prices. A markup model for aggregate export/import prices is set up, and the analysis is carried out using Johansen–Juselius cointegration and error correction models. The evidence shows partial pass-through into export prices, but more than complete pass-through into import prices, with the long-run pass-through coefficients being larger than the short-run coefficients. Thus, the Indian exporter does appear to have a little bargaining power, but it is not so with the Indian importer. The results cast a question mark over the efficacy of exchange rate changes as a policy tool in correcting trade balances, and also point to the risk of imported inflation.

Suggested Citation

  • Aruna Kumar Dash & V. Narasimhan, 2011. "Exchange Rate Pass-through," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 12(1), pages 1-23, March.
    • Handle: RePEc:sae:soueco:v:12:y:2011:i:1:p:1-23
    DOI: 10.1177/139156141001200101
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bilal KARGI, 2014. "Time Series Analysis about the Relationship between Foreign Trade and Exchange Rate in Turkish Economy," Timisoara Journal of Economics and Business, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 7(2), pages 123-133, December.
    2. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-281, March.
    3. 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.
    4. 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.
    5. 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

    JEL: C32; JEL: E31; JEL: F10; Exchange rate pass-through; cointegration; error correction model; export and import prices;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F10 - International Economics - - Trade - - - General

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