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Exchange Rate Pass-through: An exploration on India’s automobile sector

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  • Sengupta, Darpajit
  • Sinha Roy, Saikat
Abstract
This study is aimed at estimating the Exchange Rate Pass Through (ERPT) to export prices of Indian Automobiles at HS 8 digit level classification. Using profit maximising approach of firms, in lines of Bailliu and Fujii (2004) theoretical specification this paper estimates the ERPT elasticities in the ambit of dynamic panel data technique. While the pass through is quite low for tractors and bicycles, the elasticities are high for vehicular spare parts and fighting equipment like tankers etc. Unlike in the short run, the pass through is relatively high in the long run. The dynamic panel results at the aggregate level show that trade openness and world demand are statistically significant variables in explaining the volatility of export prices in a small open economy like India. The findings on exchange rate pass through have implications for exchange rate being used as an important policy instrument for export promotion and growth on one hand, and in reducing current account deficit, on the other hand.

Suggested Citation

  • Sengupta, Darpajit & Sinha Roy, Saikat, 2020. "Exchange Rate Pass-through: An exploration on India’s automobile sector," MPRA Paper 102533, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:102533
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    More about this item

    Keywords

    exchange rate pass-through; export prices; dynamic panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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