Causal Relationships between Industrial Production, Interest Rate and Exchange Rate: Evidence on India

11 Pages Posted: 28 Dec 2005

See all articles by Deepak Garg

Deepak Garg

affiliation not provided to SSRN

Madhuri Agrawal

Indian Institute of Management - Lucknow

Rajesh R.K.

affiliation not provided to SSRN

Date Written: August 2005

Abstract

This paper attempts to examine the causal relationships between Industrial Production, Interest Rate and Exchange Rate in India. The study uses Granger's Causality test and Vector Auto Regression technique on monthly IIP (Index of Industrial Production), exchange rate, and interest rate for the period April 1992 to March 2004. The major findings of the study are (a) there exists a unidirectional causality between the exchange rate and interest rate and between the exchange rate return and IIP; (b) there is no Granger's causality between the interest rate and IIP. Through Vector Auto Regression modeling, the study confirms the results obtained from Granger's Causality test. It shows that interest rate and IIP depend on the exchange rate and there is no relationship between interest rate and IIP.

Keywords: Industrial Production, Interest Rate, Exchange Rate, Granger's Causality, Vector Autor Regression

JEL Classification: F41

Suggested Citation

Garg, Deepak and Agrawal, Madhuri and R.K., Rajesh, Causal Relationships between Industrial Production, Interest Rate and Exchange Rate: Evidence on India (August 2005). Available at SSRN: https://ssrn.com/abstract=871744 or http://dx.doi.org/10.2139/ssrn.871744

Deepak Garg (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Madhuri Agrawal

Indian Institute of Management - Lucknow ( email )

Prabandh Nagar
off Sitapur Road
Lucknow - 226013, Uttar Pradesh 226013
India

Rajesh R.K.

affiliation not provided to SSRN ( email )

No Address Available

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