Open Access Subscription Access
Open Access Subscription Access
Trends in Indian Rupee-US Dollar Rate:An Empirical Analysis
The paper attempts to identify Indian and US macroeconomic factors and other global factors significantly influencing Indian rupee- US dollar spot rate and also, any long term association among these macroeconomic variables and rupee-dollar spot rates. Time series analysis has been undertaken for ten year period of April, 2005 –March, 2015 using monthly data of these variables. The exogenous variables considered are money stock (India and US), nominal long run bond yield (India and US), commodity price levels (India and US), stock prices (India and US), forward premium in Indian rupee-US dollar forward market, foreign exchange reserves with Reserve Bank of India., foreign institutional investment in India, Indian rupee-euro spot rate, Indian rupee-British pound spot rate and Indian rupee-Japanese yen spot rate. Ordinary least squares regression results indicate that significant non-price variables are foreign exchange reserves and RBI intervention measure, both being negatively related to rupee value. Out of price variables, consumer prices in US, rupee-euro spot rate and rupeepound spot rate are significant variables, all being positively related to rupee value and US 10 year bond yield is negatively related to value of rupee. Johansen’s co-integration analysis indicate that all Indian and US macroeconomic variables and other currency pairs of rupee are in a long run relationship with rupee-dollar spot rate.
Indian Foreign Exchange Market, Indian Rupee, Johansen’s Co Integration, Ordinary Least Squares Regression.
- Arize, A. C. and Osang, T. Foreign exchange reserves and import demand: Evidence from Latin America. The World Economy, 30(9), 2007,1477-1489
- Arunachalam, P, Foreign exchange reserves in India and China. (Retrieved from https://dyuthi.cusat.ac.in/xmlui/handle/purl/4298), 2010.
- Dimitrova, D. The relationship between exchange rates and stock prices: Studied in a multivariate model. Issues in Political Economy, 14(1), 2005, 3-9.
- Dua, P. and Ranjan, R, Modeling and Forecasting the Indian RE/US Dollar Exchange Rate. Centre for Development Economics, Delhi School of Economics Working Paper, 197, 2011.
- Hunter, J. and Menla Ali, F, The monetary model of the US Dollar–Japanese Yen exchange rate: An empirical investigation, Economics and Finance Working Paper, Brunel University: 13-08, Mar 2013 (Retrieved from http://dspace.brunel.ac.uk/handle/2438/7421
- Jegajeevan, S., Validity of the Monetary Model of the Exchange Rate: Empirical Evidence from Sri Lanka. Staff Studies. 42(1), 2015, 47–74.
- Kutty, G, The relationship between exchange rates and stock prices: The case of Mexico. North American Journal of Finance and Banking Research, 4(4), 2010, 1.
- Lace, N., Macerinskiene, I., and Balciunas, A, Determining the EUR/USD exchange rate with U.S. and German government bond yields in the post-crisis period. Intellectual Economics, 9(2), 2015,150-155
- Mishra, A. K., Swain, N., and Malhotra, D. K, Volatility spillover between stock and foreign exchange markets: Indian evidence. International Journal of Business, 12(3), 2007, 343.
- Nagayasu, J. Does the Long–run PPP Hypothesis Hold for Africa? Evidence from a Panel Co-integration Study. Bulletin of Economic Research, 54(2), 2002, 181-187.
- Neely, C. J., Identifying the effects of US intervention on the levels of exchange rates, Working Paper 2005-031C, http://research.stlouisfed.org/wp/2005/2005-031.pdf, Retrieved from https://research.stlouisfed.org/wp/2005/2005-031.pdf,
- Patnaik, I, India‘s policy stance on reserves and the currency. Technical the case of India, 259, 2003.
- Shams, A. N. M., and Murad, W. M. S, Cointegrating Analysis, Causality Testing and Wagner's Law: The Case of Bangladesh. The Jahangirnagar Review, Part II: Social Science, 2009, 32
- Sjo, B, Testing for unit roots and cointegration. Retrieved from https://www.iei.liu.se/nek/ekonometrisk-teori-7-5-hp730a07/labbar/1.233753/dfdistab7b.pdf, 2008
- Srikanth, M., and Chittedi, K. R, Perspectives on Forward Premia in India Foreign exchange Market: A Study of USD/INR. Journal of Stock and Foreign exchange Trading, 2014
- Srikanth, M., and Kishor, B, Exchange rate dynamics in Indian foreign exchange market: An empirical investigation on the movement of USD/INR. IUP Journal of Applied Finance, 18(4), 2012, 46.
- Tiwari, A. K., and Shahbaz, M. Revisiting Purchasing Power Parity for India using threshold co-integration and nonlinear unit root test. Economic Change and Restructuring, 47(2), 2014, 117133.
- Weliwita, A. Co-integration tests and the long run purchasing power parity: examination of six currencies in Asia'. Journal of Economic Development, 21, 1998, 103-15.
- Wickremasinghe, G. B, Are real exchange rates of Papua New Guinea mean-reverting? Evidence from panel unit root tests. Applied Economics Letters, 16(2), 2009, 157-161.
Abstract Views: 79
PDF Views: 0