Dr. Kumar Bijoy – Department of Management studies, Shaheed Sukhdev College of Business Studies: University of Delhi,
India
DOI: https://doi.org/10.31410/ERAZ.2019.87
5th International Conference – ERAZ 2019 – KNOWLEDGE BASED SUSTAINABLE DEVELOPMENT, Budapest – Hungary, May 23, 2019, CONFERENCE PROCEEDINGS
Published by: Association of Economists and Managers of the Balkans – Belgrade, Serbia
Conference partners: Faculty of Economics and Business, Mediterranean University, Montenegro; University of National and World Economy – Sofia, Bulgaria; Faculty of Commercial and Business Studies – Celje, Slovenia; Faculty of Applied Management, Economics and Finance – Belgrade, Serbia;
ISBN 978-86-80194-20-2, ISSN 2683-5568, DOI: https://doi.org/10.31410/ERAZ.2019
Abstract
Volatility in foreign exchange rates is an indicator of economic performance particularly
for emerging market economies like India. This study tries to re-examine the relationship between
exchange rates and macroeconomic variables for Indian economy. It addresses three issues, namely
Volatility in exchange rates (USD/INR; EUR/INR and GBP/INR); Effect of Economic crisis represented
by global financial crisis (GFC) and macroeconomic variables mainly Inflation and Yield of 10years
Govt. Securities on above mentioned three exchange rates; and Relationship between exchange rates
volatility and foreign trade (both export and import). Daily data for three exchange rates are taken for
the period of January 3rd, 2000 to March 26th 2019, whereas for other two objectives, monthly average
exchange rates are used along with monthly data for select macroeconomic variables for the period
of Jan 2000 to Dec 2018. Volatility is represented by Standard Deviation and Causality is checked
through Granger Causality Test. The findings suggest that volatility is highest for EUR/ INR followed by
GBP/INR and USD/INR. The average annual volatility for all three exchange rates indicates the minimum
value in 2001 whereas maximum value for 2013. It is also observed that volatility is higher during
crisis period compared to pre and post crisis periods for all three exchange rates. Granger Causality
test suggests that out of 10 pairs of testing for causality only unidirectional cause effect relationships
stating GBP granger causes yield on 10 years Government securities. The study further finds that USD/
INR exchange rate granger cause imports of India. These findings will help the market players at the
time of taking their strategic decisions whereas to regulators during their policy decision process. For
academicians and researchers, it provides an opportunity to explore the conditions with more macroeconomic
variables and with the use of advanced econometric tools.
Key words
Exchange rates, Global Financial crisis, Volatility, Granger Causality tests
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