Abstract
ABSTRACT This paper examines the effect of India's currency devaluation on its trade balance using quarterly time-series data from 1997 to 2018. Based on elasticity, absorption and monetary approach, a trade balance model is developed. The model is estimated using the ARDL Bounds testing method. After establishing the long-run relationship among the variables, an error correction model is developed to find out the short-run dynamics. The estimated results from the error correction model suggest that foreign income, foreign money supply and exchange rate are significant in explaining India's trade balance in the short run. However, in the long run, only change in the exchange rate will have any effect on the trade balance. Keywords Devaluation, J-curve, ARDL, India
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