The paper attempts to answer some important questions around the inflationary process in Nepal, particularly the … border, price developments in Nepal would be expected to mirror to those in India. The results show that inflation in India … and inflation in Nepal tend to converge in the long run. Our estimates indicate that the passthrough of inflation from …

, currently, Nepal may be reasonably well off with its peg to the Indian rupee. As its economy opens and its trade base and … be a better policy choice. The regression results indicate that, currently, the prices of imported goods in Nepal are … solely influenced by India, suggesting that with the peg to the Indian rupee, Nepal can isolate the import side of its …

trade policies. We examine here the consequences of such a “Gulliver” effect, looking at the case of Nepal whose economy is … closely linked to the economy of India. Since India’s protective policies are not optimal for Nepal, we consider the various … alternatives for Nepal. The “optimal divergence” is for Nepal to allow the free import of intermediate and capital goods, while …