Rupee-Dollar Rate Trends: Co-integration Analysis
Published: 2017
Author(s) Name: Sunaina Kanojia and Shivali Dhameja |
Author(s) Affiliation: Associate Professor, Shri Ram College of Commerce, Delhi University, Delhi
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Abstract
The long run dynamics of Indian foreign exchange market with respect to Indian Rupee-US Dollar
spot rate can be attributed to interplay of several domestic, foreign and global factors. This paper
attempts to identifies whether there exists any long term equilibrium relationship among macroeconomic
variables of India and US, Indian Rupee-Euro spot rate, Indian Rupee-Yen spot rate, Indian Rupee-
UK Pound spot rate and Indian Rupee-US Dollar spot rate. Time series analysis has been undertaken
for ten year period of April, 2005 –March, 2015 using monthly data of these variables. The 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, Indian rupee-euro
spot rate, Indian rupee-British pound spot rate and Indian rupee-Japanese yen spot rate. Johansen’s
co-integration analysis indicates that all Indian and US macroeconomic variables and other currency
pairs of rupee are in a long run relationship with rupee-dollar spot rate.
Keywords: Indian Foreign Exchange Market, Indian Rupee, Johansen’s Co-integration, Stationarity
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