IMPACT OF EXCHANGE RATE AND GLOBALIZATION ON INFLATION IN INDIA AND CHINA

Abstract

The globalization has brought down high inflations among both developed and developing economies in the late 1990’s. Most of the developing countries integrated their economies to global economy. This inflation has brought advantages in some countries and challenges in other countries. This is very important to know the influencing factors in open economies to gain the advantages of managed inflation. From the in-depth review of literature, we identified three variables such as exchange rate intervention (exchange rate, forex reserves) and globalization were having high impact on inflation in India and China. The study is based on panel data modeling using seventeen years of monthly data from January 1st 2010 to December 31st 2021 of India and China. The required data set for the selected countries were obtained from various sources. The study employed GMM estimation method to check the behavior of variables. The empirical results indicate that there is a positive correlation of independent variables with dependent variable i.e. inflation.