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Exchange Rates and International Reserves in India

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  • Aviral Kumar Tiwari
  • Phouphet Kyophilavong

Abstract

This article aims to study the relationship between real effective exchange rate (REER) and international reserve in India by applying the bivariate and conditional bivariate Granger causality test in frequency domain framework proposed by Breitung and Candelon (2006). The variables that are included to condition the frequency domain are the industrial production index, stock prices and wholesale producer index. Results found the evidence of business cyclical causality running from international reserve to REER for frequencies between 0.01 and 1.63 that corresponds to the 4 months and higher months cycles in India. The results have a strong bearing on the policy implications of India and any country alike it. The study concludes that the Reserve Bank of India should consider exchange rate as a grave determinant to manage appropriate forex reserve.

Suggested Citation

  • Aviral Kumar Tiwari & Phouphet Kyophilavong, 2017. "Exchange Rates and International Reserves in India," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(1), pages 76-93, March.
    • Handle: RePEc:sae:soueco:v:18:y:2017:i:1:p:76-93
    DOI: 10.1177/1391561416684237
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    2. Joel Oyeleke*, Olusola, 2021. "Frequency Domain Approach To Causality Among Fiscal Deficit, Interest Rates And Inflation In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 8(1), pages 46-59, June.

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    More about this item

    Keywords

    Exchange rates; international reserves; frequency domain Granger causality;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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