Exchange rate pass-through in India

Prashant Parab ()
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Prashant Parab: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: Investigating exchange rate fluctuations is important to understand their influence on domestic inflation dynamics of the country as well as to study the stabilisation role played by the monetary policy. Understanding exchange rate pass-through (ERPT) is important especially from emerging markets' perspective since they tend to be net importers. This study examines ERPT for India from 2005Q2 to 2021Q2, i.e., the effects of the nominal effective exchange rate (NEER) on the domestic inflation captured using CPI and WPI. Using linear and non-linear ARDL models, we discover less than perfect exchange rate pass-through for India. The influence is higher for WPI than CPI on account of inelastic crude oil imports. This study also finds a higher influence of exchange rate appreciation than that of depreciation due to the policy measures to limit the pass-through effect of exchange rate depreciation but allowing appreciation to have a complete pass-through.

Keywords: Exchange rate pass-through; ARDL; NARDL; Nominal effective exchange rate; Inflation dynamics (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 F31 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2022-08
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:ind:igiwpp:2022-012

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