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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

Abstract: 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)
Date: 2021
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DOI: 10.1177/0015732520961328

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