Impact of Exchange Rate Changes on the Trade Balance of India: An Asymmetric Nonlinear Cointegration Approach
Sajad Ahmad Bhat and
Javed Ahmad Bhat
Foreign Trade Review, 2021, vol. 56, issue 1, 71-88
Applying an asymmetric model, the study reported no evidence of J-curve phenomenon in case of India. In the short-run currency appreciation deteriorates the trade balance and currency depreciation improves it. In the long-run, again the similar response is observed, however, only the impact of currency depreciation is statistically significant. Increase in domestic demand deteriorates the trade balance by a greater magnitude than improvement is observed due to the decline in domestic demand conditions. Finally, foreign demand hike improves the trade balance relatively by a higher magnitude; however, the impact of a foreign demand decline is statistically insignificant. JEL Codes: F4, F41, F42
Keywords: Trade balance; exchange rate; domestic demand; foreign demand; asymmetry (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:fortra:v:56:y:2021:i:1:p:71-88
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