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Optimum Level of Currency Reserves: Investigation and Forecasting of Indian Rupee Using ARIMA Model

Author

Listed:
  • J. Peter Leo Deepak

    (St. Joseph’s Institute of Management)

  • Yavana Rani Subramanian

    (CMS Business School, Jain (Deemed-to-be) University)

  • J. Josephine Lalitha

    (PSG College of Arts and Science)

  • K. Vidhya

    (Annai Veilankanni’s College for Women)

Abstract

This paper investigates the reason behind the Rupee's depreciation over the period. In the late 1990s, India faced a serious economic crisis where India could barely finance three weeks' worth of imports, and the cause for this crisis was nothing but the currency devaluation and the current account debt. Concerning this major crisis bank sluggishly awakened to realize that it had to increase its currency reserves. Today India is one of the top ten countries in the world, having the largest foreign currency reserves as assets in its treasury. It is poignant that Indian Rupee remains continuously devalued from 1991 onwards. However, compared to its counterpart countries like China (CHF) and Russia (RUB), the Indian Rupee is still considered the most vulnerable currency. At this juncture, it is essential to determine the major causes of the Indian Rupee devaluation. There is a need to find various measures to increase the currency reserves to arrest currency devaluation. In this context, the article discusses forecasting the future movement of the Indian Rupee in terms of factors assisting in improving the currency reserves.

Suggested Citation

  • J. Peter Leo Deepak & Yavana Rani Subramanian & J. Josephine Lalitha & K. Vidhya, 2024. "Optimum Level of Currency Reserves: Investigation and Forecasting of Indian Rupee Using ARIMA Model," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 20(1), pages 137-150, August.
    • Handle: RePEc:spr:jbuscr:v:20:y:2024:i:1:d:10.1007_s41549-023-00091-3
    DOI: 10.1007/s41549-023-00091-3
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    References listed on IDEAS

    as
    1. Clark, Peter B, 1970. "Optimum International Reserves and the Speed of Adjustment," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 356-376, March-Apr.
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    3. Graham Bird & Ramkishen Rajan, 2003. "Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises," The World Economy, Wiley Blackwell, vol. 26(6), pages 873-891, June.
    4. Miss Yinqiu Lu & Yilin Wang, 2019. "Determinants of Currency Composition of Reserves: a Portfolio Theory Approach with an Application to RMB," IMF Working Papers 2019/052, International Monetary Fund.
    5. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, vol. 91(362), pages 507-514, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Currency reserves; USD/INR; Trade balance; External debt; Volatility; BRICS; ARIMA model;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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