India’s Real Exchange Rate and Trade Balance: Fresh Empirical Evidence

12 Pages Posted: 29 Sep 2012

See all articles by Anubha Dhasmana

Anubha Dhasmana

Indian Institute of Management (IIMB), Bangalore

Date Written: September 25, 2012

Abstract

This paper studies the relationship between India’s real exchange rate and its trade balance with her major trading partners using quarterly trade data for 15 countries over the period 1975 Q1-2011 Q1. Apart from oft used bilateral trade model we use Pooled Mean Group estimator of Pesaran and Smith (1995) to get direct estimates of long term income and real exchange rate elasticities. We find that real exchange rate depreciation is positively associated with the trade balance in the long run. At the same time real exchange rate volatility is negatively correlated with India’s trade balance in the long run.

Keywords: Trade, Exchange Rate, J-Curve

Suggested Citation

Dhasmana, Anubha, India’s Real Exchange Rate and Trade Balance: Fresh Empirical Evidence (September 25, 2012). IIM Bangalore Research Paper No. 373, Available at SSRN: https://ssrn.com/abstract=2153401 or http://dx.doi.org/10.2139/ssrn.2153401

Anubha Dhasmana (Contact Author)

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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