Real Exhange Rate Stationarity in Managed Floats: Evidence From India
AbstractThis paper tests for mean-reversion in real exchange rates for India during the recent (managed) float period yield evidence of mean- reversion in the real exchange rate series constructed with the consumer price index as deflator as well as for a series constructed using the ratio of wholesale and consumer price indices to proxy for the shares of tradable and non-tradable goods. An interesting finding is that there is no evidence for mean-reversion when the real exchange rate is computed with a broader base of currencies, suggesting exchange rate policy stabilisation effects vis-a-vis the US dollar. Another finding is that PPP fails to hold for the detrended relative prices of traded to non- traded goods, indicating possible presence of Balassa-Samuelson effect. The findings indicate the need for a model specifying real deterinants of the exchange rate to separate nominal disturbances from the real effects.
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Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0405014.
Length: 32 pages
Date of creation: 09 May 2004
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real exchange rates; purchasing power parity; exchange rate policy; India; Balassa-Samuelson effect;
Other versions of this item:
- Renu Kohli, 2004. "Real Exchange Rate Stationarity in Managed Floats: Evidence from India," International Finance 0405011, EconWPA.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-26 (All new papers)
- NEP-CWA-2004-05-16 (Central & Western Asia)
- NEP-IFN-2004-05-26 (International Finance)
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