IJSRP, Volume 4, Issue 11, November 2014 Edition [ISSN 2250-3153]
Santosh Koirala
Abstract:
The open border between Nepal and India and trade dependency of nascent Nepalese economy with her economic giant neighbor would guide the attention of Nepalese policy-makers to consider the transmission effect of Indian Prices on Inflation in Nepal. The study employs unique variable Trade-Dependency with India as inflation transmitting variable to analyze whether Inflation in Nepal is fully home-made or does Nepal borrow [significant] portion of its inflation from India. Applying Co-Integration and VECM approach of monthly time series data from the period of 2000:01 to 2013:07, our study shows strong positive long-term relationship inflation in Nepal and trade dependency with India.