A Historical Perspective and Behavior of Foreign Exchange Rate Determination in India: An Empirical Analysis since Jan.2003-Dec.2010
Journal Title: International Journal of Computational Engineering and Management IJCEM - Year 2013, Vol 16, Issue 4
Abstract
This paper empirically examines the effects of economic variable on foreign exchange rate using monthly data from jan.2003 to dec.2010. This paper uses monthly data for measuring the exchange rate volatility and explain the behavior of Indian exchange Rate. It has seen a “gradual shift” from a par value system to basket-peg exchange rate system; and further to a managed floating exchange rate system. The study applies the unit root test ,dicky fuller test, augmented dickyfuller test, simple Ordinary Least Square (OLS) method and multiple regression method. We test the stationarity of economic variables with the help of unit root test . The study concludes that, there is no statistical and significant relationship between the exchange rate volatility and export of the country. But The result arrived with the help of monthly data present a clear picture of Exchange Rate determination in India under the period of the study The result shows that exports and imports are not statistically significant variable for foreign exchange Rate determination during this time period and regression analysis clearly indicates that X, M, BOT, FXRe, Gold, SDR's, M1, M4,RM, REER-6 and REER-36, have a Negative relation with FXR. There variable have Negative impact on FXR. But M2, M3, WPI, CPI, NEER-6, NEER-36, BR, UNME have positive related with FXR. In out of these variables, FXRe-all, SDR's, WPI, REER-6, REER-36, Bank rate are statistically significant. The study concludes that for economic stability in the economy, we have to remove the temporary shocks, increase capital mobility and control the Inflation in the economy.
Authors and Affiliations
Amandeep Kaur
Keywords
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