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Exchange-Rate Pass-Through to Sectoral Import Prices in an Emerging Market Economy: An Indian Evidence

  • Pradyut Kumar Pyne
  • Saikat Sinha RoyEmail author
Chapter

Abstract

This paper investigates the degree of exchange-rate pass-through (ERPT) to prices of non-oil imports in India during reforms. The empirical literature provides ample evidence on incomplete pass-through to import prices across developed and developing economies. Theoretically, incomplete pass-through to import prices is explained in terms of exporters adjusting their markups in order to maintain market shares following currency depreciation. Even though the studies on India have sound theoretical basis, the empirical estimates are weak based on single equation models. In sharp contrast to earlier attempts, a simultaneous equation model incorporating both demand and supply sides is set up for estimation in this paper. The reduced form equation for import prices is estimated for disaggregated imports using pooled dataset covering eight major product groups during 1993–94 to 2017–18. The empirical results, which are robust, show incomplete exchange-rate pass-through to import prices with the degree of pass-through varying across import product groups. The results have significant implications for policy on trade and exchange rate in any emerging market economy.

Keywords

Exchange rate Import prices Incomplete pass-through Market structure Simultaneous equation model 

JEL Classification

C33 F14 F33 F41 L16 

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Copyright information

© Springer Nature Singapore Pte Ltd. 2019

Authors and Affiliations

  1. 1.Department of Economic AffairsMinistry of FinanceNew DelhiIndia
  2. 2.Department of EconomicsJadavpur UniversityKolkataIndia

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