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Capital flows, financial asset prices and real financial market exchange rate: A case study for an emerging market, India

Author

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  • Ghosh, Saurabh
  • Reitz, Stefan

Abstract

In this paper we empirically investigate the relationship between capital flows and exchange rates in India based on a new index of real effective exchange rates for the Indian Rupiah. Instead of using consumer price indices we deflate exchange rates by MSCI asset price indices. The cointegration analysis indicates a long-run equilibrium relationship between our real financial market exchange rate and the net outstanding equity investment in India. In the short run capital inflows are accompanied by an appreciation of real financial exchange rate of the Rupiah.

Suggested Citation

  • Ghosh, Saurabh & Reitz, Stefan, 2012. "Capital flows, financial asset prices and real financial market exchange rate: A case study for an emerging market, India," Kiel Advanced Studies Working Papers 461, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwasw:461
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    Cited by:

    1. Li, Xin & Su, Chi-Wei & Chang, Hsu-Ling & Ma, Ji, 2018. "Do short-term international capital movements play a role in exchange rate and stock price transmission mechanism in China?," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 15-25.
    2. Valentyna Ozimkovska, 2018. "Real financial market exchange rate volatility and portfolio flows," International Economics and Economic Policy, Springer, vol. 15(2), pages 281-303, April.

    More about this item

    Keywords

    Real Exchange Rate; Capital Flows; Financial Asset Prices; Emerging Financial Markets; India;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • 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

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