Exchange Rate Pass-through in India's Export Prices
Journal Title: Journal of Business Thought - Year 2014, Vol 4, Issue
Abstract
Thispaperdiscussestheconceptofexchangeratepass-through(ERPT)inexportprices.Exchangeratevariationsaffectinternationalprice-competitivenessofexportsandtheirprofitabilityindomesticcurrencyterms.ERPTforexportsreferstothedegreetowhichexchangeratechangesaffectpricesoftradedgoodsmeasuredinimporter'scurrency,i.e.,whetherchangesinexchangeratesarepassedontoforeignconsumersorabsorbedbyexporters,toretainmarketshares,bymaintainingstablepricesininternationalmarkets.Thechoicedependsontheassumptionsregardingtheinternationalmarketstructureandproductdifferentiation.Magnitudeandspeedofpass-throughhelpsunderstandtherelationbetweenexchangeratechangesanditsimpactontradebalance.Inthispaper,weestimatetheERPTforIndianaggregatenon-oilexportsandfindlowpass-throughoverthelongperiodbetween1960-2007.Themagnitudeincreasesslightlyinthepost-1991periodinthewakeofcompetitivecurrencyadjustmentsbymanydevelopingcountries.Itcanthusbearguedthatcurrencyadjustmentsalonecannotbringaboutanadjustmentincurrentbalance.Thereisaneedtopayattentiontocommoditymixandaspectsofnon-pricecompetitivenesstoimprovesharesinworld exports.
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