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Exchange Rate and Reserves in Asian Countries: Causality Test

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  • Mohammad Afzal

Abstract

Countries hold foreign currency reserves to support and influence exchange rate. This paper examines the causal relationship between exchange rate and reserves in six Asian countries. We obtain divergent evidence regarding the long-run and stable relationship between reserves and exchange rate in the sample countries. There is evidence of bidirectional causality between reserves and exchange rate in India, while no-causality in Bangladesh. There is unidirectional causality from reserves to exchange rate in Pakistan, Sri Lanka and Thailand and unidirectional causality from exchange rate to reserves in Philippines. It is concluded that holding of reserves is necessary for supporting exchange rate and vice versa.

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  • Mohammad Afzal, 2010. "Exchange Rate and Reserves in Asian Countries: Causality Test," Global Economic Review, Taylor & Francis Journals, vol. 39(2), pages 215-223.
    • Handle: RePEc:taf:glecrv:v:39:y:2010:i:2:p:215-223
    DOI: 10.1080/1226508X.2010.483839
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    1. Takeshi Inoue, 2015. "Central Bank Intervention And Exchange Rate Behavior: Empirical Evidence For India," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(02), pages 1-11.
    2. Anam Munawar & Muhammad Ahmad Rehan, 2021. "Major Agents Influencing Inflation in Pakistan," International Journal of Agriculture & Sustainable Development, 50sea, vol. 3(3), pages 64-71, September.

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