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What Explains Real and Nominal Exchange Rate Fluctuations?: Evidence from SVAR Analysis for India

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  • Takeshi Inoue

    ()
    (Institute of Developing Economies)

  • Shigeyuki Hamori

    ()
    (Kobe University)

Abstract

This study empirically analyzes the sources of the exchange rate fluctuations in India by employing the structural VAR model. The VAR system consists of three variables, i.e., the nominal exchange rate, the real exchange rate, and the relative output of India and a foreign country. Consistent with most previous studies, the empirical evidence demonstrates that real shocks are the main drives of the fluctuations in real and nominal exchange rates, indicating that the central bank cannot maintain the real exchange rate at its desired level over time.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 4 ()
Pages: 2803-2815

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Handle: RePEc:ebl:ecbull:eb-09-00588

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Keywords: Exchange Rate; India; RBI; SVAR;

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  1. Richard Clarida & Jordi Gali, 1994. "Sources of real exchange rate fluctuations: how important are nominal shocks?," Proceedings, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, issue Apr.
  2. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Tomoe Moore & Eric J. Pentecost, 2006. "The Sources of Real Exchange Rate Fluctuations in India," Indian Economic Review, Department of Economics, Delhi School of Economics, Department of Economics, Delhi School of Economics, vol. 41(1), pages 9-23, July.
  4. Shigeyuki Hamori & Naoko Hamori, 2007. "Sources of Real and Nominal Exchange Rate Movements for the Euro," Economics Bulletin, AccessEcon, vol. 6(32), pages 1-10.
  5. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 257-275, June.
  6. Raghbendra Jha, 2005. "Inflation Targeting In India: Issues And Prospects," CAMA Working Papers 2005-28, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  7. Rogers, John H., 1999. "Monetary shocks and real exchange rates," Journal of International Economics, Elsevier, Elsevier, vol. 49(2), pages 269-288, December.
  8. Enders, Walter & Lee, Bong-Soo, 1997. "Accounting for real and nominal exchange rate movements in the post-Bretton Woods period," Journal of International Money and Finance, Elsevier, Elsevier, vol. 16(2), pages 233-254, April.
  9. Kohli, Renu, 2003. "Real exchange rate stabilisation and managed floating: exchange rate policy in India, 1993-2001," Journal of Asian Economics, Elsevier, Elsevier, vol. 14(3), pages 369-387, June.
  10. Wang, Tao, 2005. "Sources of real exchange rate fluctuations in China," Journal of Comparative Economics, Elsevier, vol. 33(4), pages 753-771, December.
  11. Ibrahim Chowdhury, 2004. "Sources of exchange rate fluctuations: empirical evidence from six emerging market countries," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(10), pages 697-705.
  12. repec:ebl:ecbull:v:6:y:2007:i:32:p:1-10 is not listed on IDEAS
  13. Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August.
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Cited by:
  1. Kubo, Koji, 2013. "Sources of fluctuations in parallel exchange rates and policy reform in Myanmar," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 388, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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