Implications of Exchange Rate Variability on India's Trade Balance: An Asymmetric Non-Linear Cointegration Investigation

The study, employing an asymmetric model, found no evidence supporting the J-curve effect in India. Over the short term, an appreciating currency tends to worsen the trade balance, whereas depreciation leads to its improvement. A comparable trend appears over the long term, but only the effect of currency depreciation is statistically meaningful. Additionally, a rise in domestic demand negatively affects the trade balance more than the positive impact of a decrease in domestic demand. Finally, higher foreign demand strengthens the trade balance more effectively, while the impact of reduced foreign demand lacks statistical significance.