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 afall 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 inthe literature, the paper conjectures that reductions in import tariffs, theremoval of trade restrictions, the increased import penetration ratio and openness of the economy and the change in the composition of imports followingthe economic liberalisation could have transitorily negated the impact of lower inflation on pass-through. Part of the nondecline in long-run pass-through is due to a rise in inflation persistence. This could follow fromthe 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.
|Keywords:||Indija, ekonomska politika, monetarna politika, inflacija, cena, devizni tečaji, ekonomska reforma, India, economic policy, monetary policy, inflation, price, exchange rate, economic reform|
|Work type:||Not categorized (r6)|
|Organization:||EF - Faculty of Economics|
|Publisher:||Bank for International Settlements, Monetary and Economic Department|
|Number of pages:||V, 29 str.|
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