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Exchange Rate Pass-Through in South Asian Countries

In: Risks and Resilience of Emerging Economies

Author

Listed:
  • Darpajit Sengupta

    (Jadavpur University)

  • Saikat Sinha Roy

    (Jadavpur University)

Abstract

This study uses dynamic panel data technique to estimate the exchange rate pass-through (ERPT) elasticity of import prices for a sample of five South Asian countries (Bangladesh, India, Iran, Pakistan, and Sri Lanka). The pass through is found to be imperfect in the short term. This suggests that firms can absorb most of the exchange rate shock and do not pass all the fluctuations on to prices. The dynamic panel results show that marginal costs, trade openness, and country-specific domestic demand are statistically significant variables that explain import price variability. In addition, pass-through elasticity also depends on the depreciation or appreciation of each country’s domestic currency. Insights into exchange rate transmission have important implications for imports, especially intermediate imports, and the use of exchange rates as an important policy tool for controlling inflation.

Suggested Citation

  • Darpajit Sengupta & Saikat Sinha Roy, 2023. "Exchange Rate Pass-Through in South Asian Countries," India Studies in Business and Economics, in: Tanmoyee Banerjee Chatterjee & Arpita Ghose & Poulomi Roy (ed.), Risks and Resilience of Emerging Economies, pages 115-129, Springer.
    • Handle: RePEc:spr:isbchp:978-981-99-4063-9_6
    DOI: 10.1007/978-981-99-4063-9_6
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