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Capital Flows, Financial Asset Prices and Real Financial Market Exchange Rate: A Case Study for an Emerging Market, India

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  • Saurabh Ghosh

    () (Reserve Bank of India)

  • Stefan Reitz

Abstract

In this paper we empirically investigate the relationship between capital flows and exchange rates in India based on a new index of real effective exchange rates for the Indian Rupee. Instead of using consumer price indices we deflate exchange rates by MSCI asset price indices. The cointegration analysis indicates a long-run equilibrium relationship between real financial market exchange rate and the net outstanding equity investment in India. In the short run capital inflows are accompanied by an appreciation of real financial exchange rate of the Rupee

Suggested Citation

  • Saurabh Ghosh & Stefan Reitz, 2013. "Capital Flows, Financial Asset Prices and Real Financial Market Exchange Rate: A Case Study for an Emerging Market, India," Journal of Reviews on Global Economics, Lifescience Global, vol. 2, pages 158-171.
  • Handle: RePEc:lif:jrgelg:v:2:y:2013:p:158-171
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    Keywords

    Short-term Capital Movements; Foreign Exchange; International Financial Markets; India;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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