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Interlinkages Between USD–INR, EUR–INR, GBP–INR and JPY–INR Exchange Rate Markets and the Impact of RBI Intervention

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  • Pami Dua
  • Ritu Suri

Abstract

This article examines interlinkages between four major exchange rates, namely, USD–INR, EUR–INR, GBP–INR and JPY–INR in terms of returns and volatility spillovers using a vector autoregressive-multivariate GARCH–BEKK framework. In addition, we analyse the impact of RBI intervention on the returns, volatility and covariance of these exchange rates. The study finds significant bidirectional causality-in-mean and causality-in-variance between all four exchange rates. The estimation results suggest that RBI intervention in the form of net purchase of dollars leads to depreciation of INR vis-à -vis USD, EUR, GBP and JPY. Furthermore, we find that RBI intervention not only significantly affects the volatility of INR vis-à -vis USD, EUR and GBP but also explains significant amount of covariance between USD–INR and the other three exchange rates. JEL Classification: C32, G15, E58, F31

Suggested Citation

  • Pami Dua & Ritu Suri, 2019. "Interlinkages Between USD–INR, EUR–INR, GBP–INR and JPY–INR Exchange Rate Markets and the Impact of RBI Intervention," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(1_suppl), pages 102-136, April.
    • Handle: RePEc:sae:emffin:v:18:y:2019:i:1_suppl:p:s102-s136
    DOI: 10.1177/0972652719831562
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    More about this item

    Keywords

    Interlinkages; foreign exchange markets; spillovers; multivariate GARCH–BEKK; RBI intervention;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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