Exchange Rate of the Rupee and Purchasing Power Parity
Exchange Rate of the Rupee and Purchasing Power Parity Author(s): Ashok K. Nag and Amit Mitra Reviewed work(s): Source: Economic and Political Weekly, Vol. 33, No. 25 (Jun. 20-26, 1998), pp. 1525-1532 Published by: Economic and Political Weekly Stable URL: http://www.jstor.org/stable/4406906 . Accessed: 02/01/2013 03:20
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SPECIAL ARTICLES
Exchange
Rate
the Power
of
Rupee Parity
Ashok K Nag Amit-Mitra
and
Purchasing
The authors examine the rupee-dollar rate, the principal exchange rate in the Indian market, in the light of the Purchasing Power Parity theory. Such an examiniation has some importantpolicy intplications. The Committee on Capital Account Convertibility has recommended a Monitoring Exchange Rate Band of ?5 per cent around the neutral REER. An intervention regime that tracks movenent in REERfrom a neutral base period rate implies that an equilibrium exchange rate can be worked out on the basis of PPP. How valid is this presumption?
AS an empiricaleconomic propositionthe powerparity(PPP)theorymerely purchasing that states international pricesof traded goods and services when converted to a common currency should equalise across national boundaries.If allowances are
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp
.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.
.
Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend access to Economic and Political Weekly.
http://www.jstor.org
This content downloaded on Wed, 2 Jan 2013 03:20:52 AM All use subject to JSTOR Terms and Conditions
SPECIAL ARTICLES
Exchange
Rate
the Power
of
Rupee Parity
Ashok K Nag Amit-Mitra
and
Purchasing
The authors examine the rupee-dollar rate, the principal exchange rate in the Indian market, in the light of the Purchasing Power Parity theory. Such an examiniation has some importantpolicy intplications. The Committee on Capital Account Convertibility has recommended a Monitoring Exchange Rate Band of ?5 per cent around the neutral REER. An intervention regime that tracks movenent in REERfrom a neutral base period rate implies that an equilibrium exchange rate can be worked out on the basis of PPP. How valid is this presumption?
AS an empiricaleconomic propositionthe powerparity(PPP)theorymerely purchasing that states international pricesof traded goods and services when converted to a common currency should equalise across national boundaries.If allowances are