What explains the real exchange rate movement for the BRICS nations? With a separate analysis for Indian economy
Among all the important targets that a country wants to realize from an economic perspective, i.e. reducing current account deficit, reduction in the inflation soaring, struggle with unemployment, reduction in the debt burden of the public/fiscal deficit. The main target which underlying all these d...
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| Format: | Article |
| Language: | English |
| Published: |
General Association of Economists from Romania
2021-06-01
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| Series: | Theoretical and Applied Economics |
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| Online Access: |
http://store.ectap.ro/articole/1547.pdf
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| Summary: | Among all the important targets that a country wants to realize from an economic
perspective, i.e. reducing current account deficit, reduction in the inflation soaring, struggle with
unemployment, reduction in the debt burden of the public/fiscal deficit. The main target which
underlying all these desires is economic stability. For economic stability, the exchange rate plays
an important role, due to little fluctuation in exchange rates, exports, imports, domestic interest
rates, debts and employment level gets affected.
The primary objective of this study is to empirically examine the long-run relationship between the
relative productivity differential (Tradable and Non-tradable goods sector) and Real exchange rate
movements with the help of the Balassa-Samuelson (BS) effect.
This study uses industry-wise disaggregation provided by KLEMS database to investigate whether
the more segregations of industries into non-tradable and tradable goods sector matters for real
exchange rate movements across countries.
This study uses two groups, BRICS countries and the Indian economy for the period of 1991-2018
and 1981-2018 respectively. With the help of panel cointegration tests proposed by Pedroni and
Kao, this paper examined the long run association between the real exchange rate and productivity
differential.
Contrary to the findings of available in the literature, the study does not find any evidence of BS
effect for BRICS nations, but finds the evidence of BS effect for India. |
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| ISSN: | 1841-8678 1844-0029 |