Exchange Rate Pass through and Pricing to the Market at Individual Product Level: Evidence from India

Anup Tiwari^1, and Rajesh Acharya H²

¹Reserve Bank of India (RBI, Headquarter)

²School of Management, National Institute of Technology Karnataka, Surathkal

Cite this paper:
Anup Tiwari and Rajesh Acharya H. Exchange Rate Pass through and Pricing to the Market at Individual Product Level: Evidence from India. Journal of Finance and Economics. 2016; 4(6):191-198. doi: 10.12691/jfe-4-6-4

Abstract

This paper investigates the degree of responsiveness of exchange rate with respect to prices of top 10 imported commodities. To test the hypothesis, we use monthly and quarterly dataset for the period from 2002 to 2014 and for four countries namely, US, UK, India and China. We use Autoregressive Distributive Lag model (ARDL) to measure the degree of responsiveness. We find the results both in long run and short run, and the corresponding degrees of responsiveness of commodities. We measure the degree of responsiveness of commodity prices into the import index and found that Non-ferrous metal shows a high degree of responsiveness followed by metalic tools, metals etc. whereas, organic chemical, machinery electrical, plastic etc. shows a negative sign. In long run, almost every commodity shows a high degree of responsiveness in comparison with short run results. The paper also attempts to recommend some policy implications based on the literature.

Keywords:
imported goods ARDL degree of responsiveness

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