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

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Listed author(s):
  • 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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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P34.pdf
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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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Find related papers by JEL classification:
  • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
  • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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  1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
  2. Clarida, Richard & Gali, Jordi, 1994. "Sources of real exchange-rate fluctuations: How important are nominal shocks?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 1-56, December.
  3. Raghbendra Jha, 2008. "Inflation targeting in India: issues and prospects," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(2), pages 259-270.
  4. Kohli, Renu, 2003. "Real exchange rate stabilisation and managed floating: exchange rate policy in India, 1993-2001," Journal of Asian Economics, Elsevier, vol. 14(3), pages 369-387, June.
  5. 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, vol. 16(2), pages 233-254, April.
  6. Ibrahim Chowdhury, 2004. "Sources of exchange rate fluctuations: empirical evidence from six emerging market countries," Applied Financial Economics, Taylor & Francis Journals, vol. 14(10), pages 697-705.
  7. Rogers, John H., 1999. "Monetary shocks and real exchange rates," Journal of International Economics, Elsevier, vol. 49(2), pages 269-288, December.
  8. 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, vol. 41(1), pages 9-23, July.
  9. 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.
  10. 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 530-539, August.
  11. repec:ebl:ecbull:v:6:y:2007:i:32:p:1-10 is not listed on IDEAS
  12. 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.
  13. Wang, Tao, 2005. "Sources of real exchange rate fluctuations in China," Journal of Comparative Economics, Elsevier, vol. 33(4), pages 753-771, December.
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Cited by:

  1. Mostafa Goudarzi & Komeil Khanarinejad & Zahra Ardakani, 2012. "Investigation of the Factors Affecting Real Exchange Rate in Iran," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 4(4), pages 55-67, August.
  2. Kubo, Koji, 2013. "Sources of fluctuations in parallel exchange rates and policy reform in Myanmar," IDE Discussion Papers 388, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  3. Chen, Chuanglian & Yao, Shujie & Ou, Jinghua, 2017. "Exchange rate dynamics in a Taylor rule framework," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 158-173.
  4. Biswajit Maitra, 2016. "Monetary, Real Shocks And Exchange Rate Variations In India," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(1), pages 81-103, March.

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