Economic reforms and exchange rate pass-through to domestic prices in India
By: by Jeevan K. Khundrakpam
Contributors: Bank for International Settlements. Monetary and Economic Dept.
Series: BIS working papers -- no. 225
Publisher: Bank for International Settlements
Published: 2007
Place of publication: Basel, Switzerland
Language: eng
Format: Electronic resource
Description: This paper examines the behaviour of exchange rate pass-through to domestic prices in India during the post-economic reforms initiated since the major devaluation of July 1991. It observes that there is no clear-cut evidence of a fall in exchange rate pass-through to domestic prices. Further, there is asymmetry in pass-through between appreciation and depreciation, and between sizes of the exchange rate change. Based on the empirical evidence provided in the literature, the paper conjectures that reductions in import tariffs, the removal of trade restrictions, the increased import penetration ratio and openness of the economy and the change in the composition of imports following the economic liberalisation could have transitorily negated the impact of lower inflation on pass-through. Part of the non-decline in long-run pass-through is due to a rise in inflation persistence. This could follow from the dismantling of price controls in an environment of periodic spurts in inflation around a non-declining inflationary trend, combined with a rise in the government deficit, which has a nexus with inflation in India.
Notes: Title from PDF file (viewed on June 21, 2007).

"Monetary and Economic Department."

"February 2007."

Includes bibliographical references.

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