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Impact of Exchange Rate Pass-Through and Volatility on Indian Foreign

Author

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  • Saradhi Raveendra
  • Dholakia, Ravindra H.

Abstract

The exchange rate Pass-through land exchange rate volatility, are two important issues that determine the effectiveness of the exchange rate depreciation in achieving the desired trade balance. The aggregate analysis of Indian imports and exports with quarterly data from 1980 to 1996 attempted in the present paper has shown that the exchange rate pass through is complete for the import prices before and after 1991 policy reforms. Export prices, on the other hand, exhibited near full pass-though only after 1991. The study also indicated that the export quantities show resistance to the changes in the exchange rate, while the import quantities show resistance to the changes in the exchange rates. The adverse impact of the exchange rate volatility on price realisation has not transmitted to the quantities traded in both the exports as well as imports in India. The study reveals India’s lack of bargaining power in the international markets both as a buyer and as a seller. It is argued that the economic reforms have strengthened the market forces by making them more responsive to the price signals. The study also indicates that targeting REER in India may not satisfactorily address the concerns for the trade balance, though it may be useful for export promotion.

Suggested Citation

  • Saradhi Raveendra & Dholakia, Ravindra H., 2000. "Impact of Exchange Rate Pass-Through and Volatility on Indian Foreign," IIMA Working Papers WP2000-01-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    • Handle: RePEc:iim:iimawp:wp01653
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    Cited by:

    1. Rucha R. Ranadive & L.G. Burange, 2015. "Transmission Mechanism of Exchange Rate Pass-through in India," Foreign Trade Review, , vol. 50(4), pages 263-283, November.
    2. haider, salman & Adil, Masudul hasan, 2017. "An Analysis of Impact of Exchange Rate Volatility on the Indian Manufacturing Exports," MPRA Paper 87839, University Library of Munich, Germany, revised 10 Nov 2017.
    3. Vikas Gautam & Suresh K G & Aviral Kumar Tiwari, 2013. "Impact Of Real Exchange Rates On Exports Of Agricultural Commodities: Evidence From India," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 11, pages 46-58, June.
    4. 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.
    5. Guneratne Banda Wickremasinghe & Param Silvapulle, 2004. "Role of Exchange Rate Volatility in Exchange Rate Pass-Through to Import Prices: Some Evidence from Japan," International Finance 0406006, University Library of Munich, Germany.

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