Empirical Economic Bulletin, An Undergraduate Journal


By examining the link between exchange rate transmission and cpi inflation across countries, we investigate whether there is a considerable link between the two. In this paper, we examine data for two representative Asian countries, mainland China and India, to determine whether there is a relationship between the two. The study finds no significant link between exchange rate and cpi inflation for China by comparing 40 years of data for these two countries, but for India, there is a particularly clear link. The difference between the two is mainly due to the different exchange rate control systems implemented by the two governments. The paper will explore and test this further to find if there is a link between the two and which factor has the greatest impact on the exchange rate.