Reforms, Exchange Rate Pass-Through and India’s Export Prices

Abstract

Using a Demand–Supply model of export determination along the lines of an imperfect substitutes model, exchange rate pass-through is estimated in this study. This is done using a time comparable panel dataset and the panel data econometric technique. The results show incomplete and low exchange rate pass-through to India’s aggregate export prices. However, the extent of exchange rate pass-through varies across product groups. The findings on exchange rate pass-through have implications for exchange rate being used as a policy instrument for export promotion and growth during reforms on the one hand, and in narrowing the current account deficit, on the other hand.