What Explains India's Real Appreciation?, Issues 2007-2268
International Monetary Fund, Asia and Pacific Department, 2007 - Foreign exchange - 50 pages
We examine the evolution of nontradable and tradable prices in the Indian economy over 1980-2002 and find widening differentials: the real exchange rate has been appreciating. This might seem unsurprising, since India's rapid per capita income growth suggests Balassa-Samuelson factors at play. However, after 1990, the tradable-nontradable labor productivity gap, the driver of real appreciation according to Balassa-Samuelson, virtually disappeared. So what explains the real appreciation? Assessing the role of both demand and supply factors, we find that demand pressures arising from higher income growth accounted for much of the relative price increase during the post-reform period. Falling import prices also contributed significantly, along with an increase in government spending.
What people are saying - Write a review
We haven't found any reviews in the usual places.
Other editions - View all
Appendix Table average Balassa-Samuelson effect capita income growth CD CD CD Chinn CM CM coefficient demand and supply demand factors deregulation disaggregated domestic relative price economy effective exchange rate estimates exchange rate appreciation exchange rate regime export share Figure fiscal growth GDP deflator Giovannini Gregorio import prices India inflation differentials International Monetary Fund labor productivity growth Manufactunng manufacturing National Accounts National Accounts Statistics nominal nontradable inflation rate nontradable sector Output Shares price of nontradables productivity differential productivity growth differential productivity growth gap purchasing power parity ratio real appreciation real effective exchange real exchange rate real per capita reforms dummy Regression relative labor productivity Relative Nontradable Inflation Relative Nontradable Prices relative price changes relative price increase robust Rogoff sample period services sector share of tradables share of WW Subsectors supply factors terms of trade total factor productivity tradable prices tradable sector tradable services tradable-nontradable trends Wolff