Exchange rate and monetary fundamentals: Long run relationship revisited
This study re-examines the long run validity of the monetary approach to exchange rate determination for India. In particular, the long run association of bilateral nominal exchange rate of Indian rupee vis-à-vis USD, Pound-sterling, Yen and Euro against the corresponding monetary fundament...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Economists' Association of Vojvodina
2015-01-01
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| Series: | Panoeconomicus |
| Subjects: | |
| Online Access: | http://www.doiserbia.nb.rs/img/doi/1452-595X/2015/1452-595X1501033B.pdf |
| Summary: | This study re-examines the long run validity of the monetary approach to
exchange rate determination for India. In particular, the long run
association of bilateral nominal exchange rate of Indian rupee vis-à-vis USD,
Pound-sterling, Yen and Euro against the corresponding monetary fundamentals
that the model underlines has been tested using Johansen-Juselius maximum
likelihood framework and Gregory-Hansen co-integration approach. Irrespective
of the exchange rates the study finds a co-integrating relationship among the
variables using Johansen-Juselius maximum likelihood approach. The
Gregory-Hansen co-integration method allows for one break determined
endogenously in three specifications also confirms the long run relationship.
Our results, hence, suggest that the monetary model is a valid theory of long
run equilibrium condition for the rupee-dollar, rupee-pound, rupee-yen and
rupee-euro exchange rates. |
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| ISSN: | 1452-595X 2217-2386 |