The Reserve Bank of India's Reaction to Exchange Rate Variation: A timevarying parametric approach

A Vadivel and M Ramachandran (ramachandraneco@gmail.com)

No 339, IEG Working Papers from Institute of Economic Growth

Abstract: This paper explores the intervention of the Reserve Bank of India in foreign exchange markets. Since the exchange rate has been fluctuating because of external capital flows, the RBI had to intervene to bring stability in the foreign exchange market. The empirical examination of this issue is conducted by using the flexible least square (FLS) method. The study used four different variants of the reaction function to know the time-varying nature of the variables. The results revealed an asymmetry in the RBI's intervention in exchange rate and reserve accumulation—it has frequently penalised the rupee's appreciation and defended its depreciation.

Keywords: Exchange rate; foreign exchange reserve; time-varying (search for similar items in EconPapers)
JEL-codes: C32 F31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2014
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Published as Institute of Economic Growth, Delhi, 2014, pages 1-24

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Persistent link: https://EconPapers.repec.org/RePEc:awe:wpaper:339

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