Analysis of Macroeconomic Determinants Ofexchange Rate Volatilityinindia

Accurate prediction of foreign exchange rate is critical for formulating robust monetary policies and developing effective trading and hedging strategies in the foreign exchange market. The models that are found in this investigation aims to show the effect of the increase or decrease in the independent variables on the dependent variable, exchange rate and hence to predict the exchange rate. The independent variables are the following: Debt to Gross Domestic Product, Balance of Payment, Gross Domestic Product growth (annual %), Inflation, Net Foreign Assets, Remittances, Foreign Direct Investment as a % of Gross Domestic Product received in year from 2007 to 2016.

2020

The main purpose of this research paper is to explore and understand the nature of association and the possible existence of a short run and long run relationship between US Dollar, EURO, British Pound and Japanese Yen. To find out the relationship among currencies USD/INR, EUR/INR, GBP/INR and JPY/INR pairs are considered. The main idea is to know how these selected indicators are related to each other. The daily basis 2781 observations for all four variables from year 2007 to 2018 are taken into consideration. Data are collected from website of Reserve Bank of India. The stationarity of time series is checked and differentiated as per requirement. Johansen cointegration test to know the long run relationship between variables is used. The result shows that there is no cointegration equation among the variables. The short run relationship is examined with help of Vector Autoregression (VAR) model and the short run relationship within different lags of variables has been identified. The correlation among variables has been examined with help of correlation matrix and Granger cause test is also used to understand the causal effect.

This paper examines the impact of exchange rate volatility on trade flows of India and China in the context of error correction model. The time period of this study is 1998-2014 and it takes into account five industries each of India's export and imports to China. For volatility measure, standard deviation of 12 monthly real bilateral exchange rates within that year is used. This paper makes use of ARDL bounds testing approach to analyse cointegration among variables. The results indicate that the exchange rate volatility has significant negative impact on most of the industries. But the increased volatility has only short term effects on the trade flows of industries and long term effects is found in only two industries.

International journal of sociology and humanities, 2019

Abstract The economic variables are integrated with each other like a complex mesh affecting one another with an unknown complex algorithm. It is a very tedious process and requires large skills and experience to establish the relationships among the plethora of economic variables in order to interpret the picture of the economy comprehensively. All the economic variables interact jointly to form the basis of understanding the economic algorithm. In contemporary ages, there has been a special interest in the inter-relationship between the exchange rates and inflation in both the advanced as well as the developing countries. These variables play a vital role in predicting the quantum of the development in the nominal and real sides of the economy, including the behaviour of domestic inflation, real output, exports and imports. The primary objective of this study is to establish the strength of correlation between the exchange rates and inflation in India over a period of time.

This paper attempts to find the impact of exchange rate volatility of Indian currency on its exports. This impact is assessed by checking for a long run relationship between the variables thus taken. This paper is divided into five parts. First it gives introduction of why is it important to look into the matter and how important is it for an economy to take such studies into consideration. Second it gives a brief literature review. Third methodology adopted to carry out the study is looked into. Results are then showed in the fourth part. And lastly the conclusion which was largely in favour of the existence of the long run relationship between the variables.

Zenodo (CERN European Organization for Nuclear Research), 2022

This study investigates volatility of exchange rates and its relationship with selected macroeconomic variables; foreign direct investment, gross domestic product and inflation. Secondary time-series data is used and collected from world development indicators for the time period of 29 years (1991 to 2019) of Pakistan. Unit root test, co-integration test, GARCH and regression analysis are the techniques used for hypothesis testing. In this study, Unit root ADF test is used to check stationarity of data then GARCH is applied to check exchange rate volatility, co-integration and regression analysis is applied to check relationship between dependent and independent variables. Underlying study concludes the results that there is an existence of long term and persistent volatility in exchange rates, and exchange rate having positive relationship with gross domestic product and foreign direct investments but negative and insignificant relationship with Inflation. The findings suggest that exchange rate should be managed by decision makers to have positive impact on economy. Many studies suggest that fixed exchange rate should be adopted by developing countries instead of floating exchange rates. This study is helpful for policy makers and for researchers.

Exchange rate in India has been highly volatile in the last three years. INR has depreciated from Rs 44 to around Rs. 60 against 1 US Dollar, It is a depreciation of more than 35% during the financial years 2011-12 to 2013-14. During the same period the Chinese Yuan has appreciated from 6.5267 to 6.2246 against 1 US Dollar. This paper analyses the volatility in India Currency (INR) against the four major currencies i.e. United States Dollar (USD), Japanese Yen (JPY), Great British Pound (GBP) & EURO which is being traded on Indian bourses and then compare it with the movements of Chinese Yuan against USD during the same period and try to figure out the reason behind this contrasting behaviour of both the major currencies. Does Current Account Deficit (CAD) have any role to play? Further this paper tries to find the expected movements in INR against USD in the current financial year after the return of confidence of FIIs in Indian stock market, consequence of which is an appreciation in INR.

International Journal of Scientific and Research Publications, 2021

As various countries are now getting global and are opening their market for foreign companies, various investors are investing in those countries, which means the demand for currency is increasing, affecting the currency exchange rate. In this research paper, the author tries to establish the relation between macroeconomic variables like Inflation and GDP on the currency exchange rate. The author has collected the secondary data of Inflation rate and GDP and tries to see its relationship with the currency exchange rate system. The author has used a correlation and regression model to analyze the relationship between the dependent and independent variables.

The main objective of this study is to investigate the impact of foreign exchange rate volatility on money demand in Pakistan. For this purpose disaggregate expenditure approach use to construct money demand function. For empirical estimation Autoregressive Distributed Lag (ARDL) approach is employed to investigate the co-integration among the money demand, exchange rate volatility, investment expenditure, consumption expenditure, government expenditure and inflation. The long run results show that household’s consumption expenditures, investment expenditure and inflation has positive and significant relationship with money demand in case of Pakistan. On the other hand, the long run results relating to government expenditures and exchange rate volatility show negative and significant impact on money demand.

International Journal of Academic Research in Business and Social Sciences, 2015

In the area of international trade few studies have examined whether fluctuation in exchange rate is base on macro variables that are used in this study. Basically the study is conducted in Pakistan. As it has been noticed that there is continuously increasing in exchange rate since last 20 years. This paper investigate that foreign direct investment, inflation and supply of money have strong relationship with exchange rate. This means that if there is increase in foreign direct investment then the exchange rate will decrease , if there is increase in supply of money then the exchange rate will grow and if there is increase in inflation then the exchange rate will increase and vice versa.

International Journal of Academic Research in Business and Social Sciences, 2015

Exchange rate has proved its behavior in determining the country economic position in this age of globalization and trade liberalization. Therefore, this research investigates that the determinants of trade i.e. Import, export, industrial growth, consumption level and oil prices fluctuation brings changes in exchange rate and its influence eventually on balance of payments in comparison of Indian and Pakistani economies. Data of defined variables is collected on annual basis of India and Pakistan for thirty one years. By applying cointegration, it is estimated that there exist a long run relationship in both countries. India and Pakistan has significantly and correctly sign the short run dynamic and some of the factors have not. In Pakistan balance of payment does granger cause exchange rate. For India, exchange rate does not granger cause balance of payment. It is concluded that exchange rate is very important determinant of trading in an open economy. Dealing in foreign exchange market, currency change affects every economy including developed or developing. This occurs because of the market forces of supply and demand, which pushes countries exchange rate as depreciated and appreciated.

2014

This research work investigates relationship among exchange rate, trade, interest rate and inflation in Pakistan and India, empirically investigated through annual data from 1971 to 2013. An increase in the exchange rate will lead to cost push on imported items than inflation arise in country .High inflation in an economy will lead to higher interest rate. High interest rate will lead to slow down in investment. In this study Autoregressive Distribution Lag (ARDL) model verify the effect of import, export; rate of inflation and interest rate on exchange rate have been found to be significant and insignificant. On primary analysis the variables are tested through ADF unit root test, Autoregressive distributed Lag estimates are determined , long run coefficient using the ARDL approach are calculated ,indicating negative insignificant only by rate of inflation in Pakistan while indicating positive insignificant only by interest rate and rate of inflation in India. Moreover import, expo...

2019

In our study we have empirically derived volatility by calculating the standard deviation of moving average of log of real effective exchange rates (RER). We have further examined the effect of real exchange rate volatility on the exports of the Indian economy from the year 2001 to 2017 respectively and used a modified model developed by Goldstain and kahan. Normalcy test using Shapiro Wilk test has been conducted and to avoid spurious regression analysis the data has been checked for stationarity with the help of Durbin Watson (DW) Test and Augmented Dickey Fuller test. Further the data has been differenced to obtain results of impact of mainly RER, Relative Prices and GDP on Indian exports. The results conclude that volatility is not normally distributed and the DW test value is lower than the effective R square value. The data at level was non stationary and with the help of ADF test we concluded that when differenced by order one < I(1)> they became stationary and signific...

Using a time series data of the variables between 1980 and 2010 the present study tries to establish a causal relationship between exchange rate and foreign exchange reserves in the Indian context. Emphasis has been laid on understanding the impact of foreign exchange reserves on the exchange rate. India has accumulated unprecedented foreign exchange reserves and synchronously has been experiencing a large depreciation in its Rupee vies avis US dollar. This trend prompted us to undertake this study to establish some association between the two trends. Our analysis uses Unit Root test, Johansson Co- integration test and Vector Auto Regression (VAR) and concludes that there is no long and short term association between exchange rate (EXR) and foreign exchange reserves (FOREX) in the Indian context.

Addleton Academic Publishers, 2012

This paper investigates the relationship between stock prices, exchange rate and demand for money in India during the period of post liberalization in India. The objective of the paper is two-fold. First, the study aims to shed light on the co-integrating properties of different monetary aggregates, stock prices, exchange rate, interest rate, economic activity, and inflation in India. Specifically, the purpose is to determine whether there is a stationary long run relationship between demand for different monetary aggregates and their determinants. Secondly, the study investigates the stability of the long run money demand function with its determinants. For the analysis, monthly data from 1996:1 to 2010:8 is used. The study employs the Johansen and Juselius Co-integration (1990) approach for checking the long run integration among the variables along with VECM model. Further, Granger Causality test is carried out. The test results discloses the presence of more than two co-integrating vector for each money demand specification. The long run elasticity of demand for money reveals that money demand function is sensitive to inflation, stock prices and economic activity. Unidirectional causality is reported from stock prices and exchange rate to demand for money function.