The Indian exchange rate and Central Bank action: An EGARCH analysis

Ashima Goyal and Sanchit Arora

Journal of Asian Economics, 2012, vol. 23, issue 1, 60-72

Abstract: We analyze the impact of conventional monetary policy measures such as interest rates, intervention, and other quantitative measures, on exchange rate level and volatility, and compare these to the impact of Central Bank communication using dummy variables in the best of a family of GARCH models estimated with daily and monthly Indian data. Since India has a managed float, we also test if the measures affect the level of the exchange rate. We find variations in the Euro/Dollar rate strongly affect the Rupee/Dollar level and volatility. The interest rate differential has strong perverse effects, tending to increase variance and depreciate the Indian currency. News decreases volatility as it adds to scarce information. Domestic policy variables affect both level and volatility, and persist at the monthly frequency, but sometimes work at cross-purposes. Communication channels have potential but were not used effectively.

Keywords: Exchange rate volatility; Monetary policy; Intervention; Communication; EGARCH (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1049007811000868
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Indian Exchange Rate and Central Bank Action: A GARCH Analysis (2010)
Working Paper: The Indian exchange rate and central bank action: A GARCH analysis (2010)
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:eee:asieco:v:23:y:2012:i:1:p:60-72

DOI: 10.1016/j.asieco.2011.09.001

Access Statistics for this article

Journal of Asian Economics is currently edited by C. Wiemer

More articles in Journal of Asian Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().