Macroeconomic Regimes and Foreign Exchange Rate Volatility in India
The IUP Journal of Applied Economics, Vol. XVI, No. 3, July 2017, pp. 25-46
Posted: 4 Aug 2018
Date Written: July 16, 2018
This paper analyzes the asymmetric volatility of foreign exchange rates with respect to the Indian rupee by identifying associated macroeconomic regimes in India. The paper aims to analyze the volatility spillovers and other relationships of the Indian rupee (INR) with respect to the US dollar (USD), Canadian dollar (CAD), British pound (GBP), Swiss franc (CHF) Japanese yen (YEN) and the euro (EUR) for the period 1973-2012. The study makes use of GARCH family models. The results show that the daily exchange rates of all the currencies considered exhibit volatility persistence and conditional autocorrelation. It is also found that the impact of exchange rate innovations on the conditional variance of the foreign exchange return series varies across the macroeconomic regimes.
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