Vector autoregression approach for pricing to market of Indian exporting firms. (2017) - Kumar, Manoj
This paper applies panel vector autoregression (VAR) techniques to analyse the pricing to market (PTM) behaviour of India's exporting firms during the 2002 to 2016 period. Quarterly data by sector and region, drawn from CII surveys, are employed to study the dynamic relationship between pricing policies of exporting firms, their cost competitiveness and demand conditions. A partial equilibrium imperfect competition model provides the structure according to which the orthogonality of structural shocks is derived. Impulse-response analysis helps assessing the reaction of export-domestic price margins to unanticipated changes in cost competitiveness and demand levels. These factors appear to exert non-negligible effects even though they turn to be very low persistent. For the period 2014 to 2016, a typical PTM behaviour emerges, while during the most recent years favourable foreign demand conditions allowed exporting India's firms to increase their export-domestic price margin in face of a strong deterioration of their cost competitiveness.