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Exchange Rate Pass-through

Aruna Dash () and V. Narasimhan
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V. Narasimhan: V. Narasimhan is Professor, Department of Economics, University of Hyderabad, Central University, Hyderabad 500046, India. Email:

South Asia Economic Journal, 2011, vol. 12, issue 1, 1-23

Abstract: This article investigates the exchange rate pass-through for Indian export and import prices. A markup model for aggregate export/import prices is set up, and the analysis is carried out using Johansen–Juselius cointegration and error correction models. The evidence shows partial pass-through into export prices, but more than complete pass-through into import prices, with the long-run pass-through coefficients being larger than the short-run coefficients. Thus, the Indian exporter does appear to have a little bargaining power, but it is not so with the Indian importer. The results cast a question mark over the efficacy of exchange rate changes as a policy tool in correcting trade balances, and also point to the risk of imported inflation.

Keywords: JEL: C32; JEL: E31; JEL: F10; Exchange rate pass-through; cointegration; error correction model; export and import prices (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1177/139156141001200101

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