Economic reforms and exchange rate pass-through to domestic prices in India
AbstractThis paper examines the behaviour of exchange rate pass-through to domestic prices in India during the post-economic reforms initiated since the major devaluation of July 1991. It observes that there is no clear-cut evidence of a fall in exchange rate pass-through to domestic prices. Further, there is asymmetry in pass-through between appreciation and depreciation, and between sizes of the exchange rate change. Based on the empirical evidence provided in the literature, the paper conjectures that reductions in import tariffs, the removal of trade restrictions, the increased import penetration ratio and openness of the economy and the change in the composition of imports following the economic liberalisation could have transitorily negated the impact of lower inflation on pass-through. Part of the non-decline in long-run pass-through is due to a rise in inflation persistence. This could follow from the dismantling of price controls in an environment of periodic spurts in inflation around a non-declining inflationary trend, combined with a rise in the government deficit, which has a nexus with inflation in India.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 225.
Length: 35 pages
Date of creation: Feb 2007
Date of revision:
pass-through; prices; exchange rate;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-18 (All new papers)
- NEP-CBA-2007-06-18 (Central Banking)
- NEP-CWA-2007-06-18 (Central & Western Asia)
- NEP-DEV-2007-06-18 (Development)
- NEP-IFN-2007-06-18 (International Finance)
- NEP-MAC-2007-06-18 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Otani, Akira & Shiratsuka, Shigenori & Shirota, Toyoichiro, 2003. "The Decline in the Exchange Rate Pass-Through: Evidence from Japanese Import Prices," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(3), pages 53-81, October.
- Frankel, Jeffrey & Parsley, David & Wei, Shang-Jin, 2005.
"Slow Passthrough Around the World: A New Import for Developing Countries?,"
Working Paper Series
rwp05-016, Harvard University, John F. Kennedy School of Government.
- Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
- Jeffrey A. Frankel & David C. Parsley & Shang-Jin Wei, 2005. "Slow Passthrough Around the World: A New Import for Developing Countries?," NBER Working Papers 11199, National Bureau of Economic Research, Inc.
- Gregory, Allan W. & Hansen, Bruce E., 1996.
"Residual-based tests for cointegration in models with regime shifts,"
Journal of Econometrics,
Elsevier, vol. 70(1), pages 99-126, January.
- Allan w. Gregory & Bruce E. Hansen, 1992. "residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers 862, Queen's University, Department of Economics.
- Tom Doan, . "GREGORYHANSEN: RATS procedure to implement Gregory-Hansen test for Cointegration with breaks," Statistical Software Components RTS00082, Boston College Department of Economics.
- Gregory, A.W. & Hansen, B.E., 1992. "Residual-Based Tests for Cointegration in Models with Regime Shifts," RCER Working Papers 335, University of Rochester - Center for Economic Research (RCER).
- Tom Doan, . "RATS programs to replicate results from Gregory and Hansen(1996) JOE article," Statistical Software Components RTZ00081, Boston College Department of Economics.
- Mario Marazzi & Nathan Sheets & Robert J. Vigfusson & Jon Faust & Joseph Gagnon & Jaime Marquez & Robert F. Martin & Trevor Reeve & John Rogers, 2005. "Exchange rate pass-through to U.S. import prices: some new evidence," International Finance Discussion Papers 833, Board of Governors of the Federal Reserve System (U.S.).
- Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997.
"Goods Prices and Exchange Rates: What Have We Learned?,"
Journal of Economic Literature,
American Economic Association, vol. 35(3), pages 1243-1272, September.
- Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
- Sven W. Arndt & J. David Richardson, 1988. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
- Helena Marques & Sushanta Mallick, 2004. "Sectoral Exchange Rate Pass-through: A Tale of Two Policy Regimes in India," Discussion Paper Series 2004_12, Department of Economics, Loughborough University, revised Mar 2004.
- Jonathan McCarthy, 2007.
"Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies,"
Eastern Economic Journal,
Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
- Jonathan McCarthy, 2000. "Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies," Staff Reports 111, Federal Reserve Bank of New York.
- J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
- Eiji Fuji & Jeannine Bailliu, 2004.
"Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation,"
Computing in Economics and Finance 2004
135, Society for Computational Economics.
- Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Working Papers 04-21, Bank of Canada.
- Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
- Patricia S. Pollard & Cletus C. Coughlin, 2004. "Size matters: asymmetric exchange rate pass-through at the industry level," Working Papers 2003-029, Federal Reserve Bank of St. Louis.
- Giovanni P. Olivei, 2002. "Exchange rates and the prices of manufacturing products imported into the United States," New England Economic Review, Federal Reserve Bank of Boston, issue Q 1, pages 3 - 18.
- M S Mohanty & Marc Klau, 2001. "What determines inflation in emerging market economies?," BIS Papers chapters, in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 1-38 Bank for International Settlements.
- Subit Gokarn & Bhupal Singh, 2011. "External factors and monetary policy: Indian evidence," BIS Papers chapters, in: Bank for International Settlements (ed.), Capital flows, commodity price movements and foreign exchange intervention, volume 57, pages 189-199 Bank for International Settlements.
- Przystupa, Jan & Wróbel, Ewa, 2009. "Asymmetry of the exchange rate pass-through: An exercise on the Polish data," MPRA Paper 17660, University Library of Munich, Germany.
- Berner, Eike, 2011.
"Exchange rate pass-through: New evidence from German micro data,"
Economics Working Papers
2011,01, Christian-Albrechts-University of Kiel, Department of Economics.
- Eike Berner, 2010. "Exchange rate pass-through: new evidence from German micro data," Economie Internationale, CEPII research center, issue 124, pages 75-100.
- Naa Akofio-Sowah, 2009. "Is There a Link Between Exchange Rate Pass-Through and the Monetary Regime: Evidence from Sub-Saharan Africa and Latin America," International Advances in Economic Research, Springer, vol. 15(3), pages 296-309, August.
- Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2009.
"Exchange rate and inflation dynamics in dollarized economies,"
Journal of Development Economics,
Elsevier, vol. 89(1), pages 98-108, May.
- Luis Carranza & José E. Galdón-Sánchez & Javier Gómez Biscarri, 2004. "Exchange Rate and Inflation Dynamics in Dollarized Economies," Faculty Working Papers 10/04, School of Economics and Business Administration, University of Navarra.
- Brun-Aguerre, Raphael & Fuertes, Ana-Maria & Phylaktis, Kate, 2012. "Exchange rate pass-through into import prices revisited: What drives it?," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 818-844.
- Ila Patnaik & Ajay Shah & Rudrani Bhattacharya, 2011.
"Monetary policy transmission in an emerging market setting,"
IMF Working Papers
11/5, International Monetary Fund.
- Bhattacharya, Rudrani & Patnaik, Ila & Shah, Ajay, 2011. "Monetary policy transmission in an emerging market setting," Working Papers 11/78, National Institute of Public Finance and Policy.
- Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2011.
"The relationship between investment and large exchange rate depreciations in dollarized economies,"
Journal of International Money and Finance,
Elsevier, vol. 30(7), pages 1265-1279.
- Luis Carranza & José Enrique Galdón Sánchez & Javier Gómez Biscarri, . "The relationship between investment and large exchange rate depreciations in dollarized economies," Faculty Working Papers 01/08, School of Economics and Business Administration, University of Navarra.
- Pradyut Kumar Pyne & Saikat Sinha Roy, 2009. "Exchange Rate Pass-Through in India an Exploration with Sectoral Import Prices," DEGIT Conference Papers c014_038, DEGIT, Dynamics, Economic Growth, and International Trade.
- Jinbin Wang & Nan Li, 2010. "Exchange rate pass-through: The case of China," Frontiers of Economics in China, Springer, vol. 5(3), pages 356-374, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Timo Laurmaa).
If references are entirely missing, you can add them using this form.