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The Dynamics of the Real and Naminal Exchange Rates of India

Author

Listed:
  • Guha-Khasnobis, Basudeb

    (Export-Import Bank of India)

  • Ranign, Rajiv

    (Orind Refractories Ltd, China)

Abstract

This paper examines the dynamics of the real and nominal exchange rate for India with respect to its major trade partners, viz., the US, UK, Germany, Japan, France, Canada and Belgium. We test (i) the cross correlations between the nominal exchange rate and the relative price levels and between the real and nominal exchange rate for short-run analysis (ii) whether nominal exchange rates and relative price levels are cointegrated. We conduct impulse response analysis of long run exchange rate and relative price level changes. The tests indicate the violation of PPP in the short as well as long run, and, that the nominal exchange rates and relative prices and well characterized as non-stationary I(1)processes. An important policy implication in the present Indian scenario is that a devaluation of the currency may indeed change the real exchange rate and affect the trade balance.

Suggested Citation

  • Guha-Khasnobis, Basudeb & Ranign, Rajiv, 1999. "The Dynamics of the Real and Naminal Exchange Rates of India," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 14, pages 114-128.
    • Handle: RePEc:ris:integr:0100
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    More about this item

    Keywords

    Dynamics; of; the; Real;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General

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