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Exchange rate alignment and producer support estimates (PSEs) for India

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  • Fuzhi Cheng
  • David Orden

Abstract

This article examines the effects of exchange rate alignment during 1985–2002 on agricultural producer support estimates (PSEs) for India. Based on several time series techniques, the equilibrium exchange rate of the Indian rupee and the corresponding misalignment of the actual rate are estimated and applied to recent PSE calculations. Our results show that the exchange rate was substantially misaligned before a financial crisis and macroeconomic reform in the early 1990s, with subsequent indirect effects on the PSEs. We find a relatively high pass‐through of exchange rate movements to domestic agricultural prices, so that removal of the exchange rate misalignment would have improved incentives to Indian farmers during this period. More recently, this indirect exchange rate effect is smaller than the direct effect in the PSEs, indicating the dominance of sectoral‐specific policies over economy‐wide policies.

Suggested Citation

  • Fuzhi Cheng & David Orden, 2007. "Exchange rate alignment and producer support estimates (PSEs) for India," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 233-243, March.
  • Handle: RePEc:bla:agecon:v:36:y:2007:i:2:p:233-243
    DOI: 10.1111/j.1574-0862.2007.00201.x
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    File URL: https://doi.org/10.1111/j.1574-0862.2007.00201.x
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    1. Tyers,Rod & Anderson,Kym, 2011. "Disarray in World Food Markets," Cambridge Books, Cambridge University Press, number 9780521172318, April.
    2. William Ellery Channing, 1994. "Change," American Journal of Economics and Sociology, Wiley Blackwell, vol. 53(1), pages 15-15, January.
    3. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, October.
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    Cited by:

    1. Debowicz, Dario & Saeed, Wajiha, 2014. "Exchange rate misalignment in Pakistan and its general equilibrium distributional implications:," PSSP working papers 16, International Food Policy Research Institute (IFPRI).
    2. Darío Debowicz & Wajiha Saeed, 2014. "Exchange rate misalignment and economic development: the case of Pakistan," Global Development Institute Working Paper Series 21014, GDI, The University of Manchester.
    3. Cheng, Fuzhi, 2008. "China: Shadow WTO agricultural domestic support notifications," IFPRI discussion papers 793, International Food Policy Research Institute (IFPRI).

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