Examining the Dynamics of India’s Major Exchange Rates Using Fourier Nonlinear Quantile Unit Root Test

Khyati Kathuria () and Nand Kumar ()
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Khyati Kathuria: University of Delhi
Nand Kumar: Delhi Technological University

Asia-Pacific Financial Markets, 2025, vol. 32, issue 3, No 4, 855-870

Abstract: Abstract The paper empirically investigates the validity of Purchasing Power Parity (PPP) hypothesis for India with its 20 major trading partners using the Fourier non-linear quantile unit root (FNQKS) test. The study uses daily data for the period 1st January 2020–2nd February 2022. FNQKS test supports PPP in 15 out of 20 trading partners of India. The validity of PPP indicates that it is impossible to obtain unbounded gains from arbitrage in these trading partners because of the adjustment process even in the presence of heavy-tailed distributions, mean breaks, and non-linearity. It also indicates that the impact of shocks on the exchange rates is transitory. Therefore, no interventions in these foreign exchange markets need to be made by the relevant authorities. Thus, non-normal distributions, structural breaks, and non-linear mean reversion appear to be key features for adjustment process of exchange rates of these 15 trading partners.

Keywords: Exchange rates; Quantile unit root; PPP; Nonlinear; Fourier; India (search for similar items in EconPapers)
JEL-codes: C1 C22 C32 F14 F41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10690-024-09473-8

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