Determinants of Foreign Exchange Reserves in India: A Multivariate Cointegration Analysis

Priyadarshi Dash () and Krishnan Narayanan ()

Indian Economic Review, 2011, vol. 46, issue 1, 83-107

Abstract: This paper attempts to identify the key determinants of foreign exchange reserves in India using Johansen (1995) Maximum-Likelihood Vector Error Correction Model (VECM) on monthly as well as annual data for reserves, imports and nominal exchange rate. The empirical results confirm that there exists a long-run cointegrating relationship among reserves, imports and nominal exchange rate. The shocks to imports and exchange rate have permanent effects on reserves, on level as well as volatility. Drawing inferences from these findings, it can be suggested that any target level of reserves could be feasible only in the short-run as the model produces a stationary equilibrium relationship among these three core variables of a standard reserve demand function.

Keywords: Reserves; Cointegration; Impulse Response (search for similar items in EconPapers)
JEL-codes: F31 F40 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (3)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dse:indecr:0032

Ordering information: This journal article can be ordered from
http://www.ierdse.org/

Access Statistics for this article

Indian Economic Review is currently edited by Pami Dua (Editor) & Ram Singh (Associate Editor) and Sunil Kanwar

More articles in Indian Economic Review from Department of Economics, Delhi School of Economics University of Delhi, Delhi 110 007. Contact information at EDIRC.
Bibliographic data for series maintained by Pami Dua ().