Interlinkages Between USD–INR, EUR–INR, GBP–INR and JPY–INR Exchange Rate Markets and the Impact of RBI Intervention

Pami Dua and Ritu Suri

Journal of Emerging Market Finance, 2019, vol. 18, issue 1_suppl, S102-S136

Abstract: This article examines interlinkages between four major exchange rates, namely, USD–INR, EUR–INR, GBP–INR and JPY–INR in terms of returns and volatility spillovers using a vector autoregressive-multivariate GARCH–BEKK framework. In addition, we analyse the impact of RBI intervention on the returns, volatility and covariance of these exchange rates. The study finds significant bidirectional causality-in-mean and causality-in-variance between all four exchange rates. The estimation results suggest that RBI intervention in the form of net purchase of dollars leads to depreciation of INR vis-à -vis USD, EUR, GBP and JPY. Furthermore, we find that RBI intervention not only significantly affects the volatility of INR vis-à -vis USD, EUR and GBP but also explains significant amount of covariance between USD–INR and the other three exchange rates. JEL Classification: C32, G15, E58, F31

Keywords: Interlinkages; foreign exchange markets; spillovers; multivariate GARCH–BEKK; RBI intervention (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:18:y:2019:i:1_suppl:p:s102-s136

DOI: 10.1177/0972652719831562

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