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On the Relationship between the Nominal Exchange Rate and Export Demand in India

Author

Listed:
  • Ranajoy Bhattacharyya
  • Bipradas Rit
Abstract
This article attempts to determine the effect of nominal exchange rates on Indian exports between 1996 and 2014. We begin by assuming that the nominal exchange rate can affect export directly as well as indirectly via its pass through on domestic prices. The analysis is conducted with quarterly data after controlling for the effect of exchange rate volatility on exports. The main results that we get are the following: There is no direct evidence that the nominal exchange rate or its volatility influences exports. However, there is a significant relationship between the relative price ratio (domestic to foreign) and export. Further, we find strong evidence of pass through of the nominal exchange rate on prices (about 54%) in the long run. We interpret this result as an evidence of the nominal exchange rate affecting exports indirectly through domestic prices. The results suggest that the debate on the influence of exchange rates on Indian export is still an open one. JEL Classification: F14, E31, G15

Suggested Citation

  • Ranajoy Bhattacharyya & Bipradas Rit, 2018. "On the Relationship between the Nominal Exchange Rate and Export Demand in India," South Asian Journal of Macroeconomics and Public Finance, , vol. 7(2), pages 260-282, December.
    • Handle: RePEc:sae:smppub:v:7:y:2018:i:2:p:260-282
    DOI: 10.1177/2277978718795777
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    References listed on IDEAS

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    Cited by:

    1. Jyoti, 2021. "Impact of Exchange Rate Fluctuations on India’s Manufacturing Exports: An Empirical Investigation on Long-Run Relation," Journal of Asian Economic Integration, , vol. 3(1), pages 61-73, April.
    2. Biswajit Maitra, 2020. "Exploring Import-led Growth in India: Evidence from the Post-reform Period," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 87-113, June.

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    More about this item

    Keywords

    Export; nominal exchange rate; consumer price index; exchange rate pass through;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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