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Real Exhange Rate Stationarity in Managed Floats: Evidence From India

  • Renu Kohli

    (Reserve Bank of India)

This 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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File URL: http://128.118.178.162/eps/if/papers/0405/0405014.pdf
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Paper provided by EconWPA in its series International Finance with number 0405014.

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Length: 32 pages
Date of creation: 09 May 2004
Date of revision:
Handle: RePEc:wpa:wuwpif:0405014
Note: Type of Document - pdf; pages: 32
Contact details of provider: Web page: http://128.118.178.162

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