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CAPITAL FLOW VOLATILITY AND EXCHANGE RATES-- THE CASE OF INDIA

Pami Dua and Partha Sen
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Partha Sen: Delhi School of Economics

No 144, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: This paper examines the relationship between the real exchange rate, level of capital flows, volatility of the flows, fiscal and monetary policy indicators and the current account surplus for the Indian economy for the period 1993Q2 to 2004Q1. The estimations indicate that the variables are cointegrated and each granger causes the real exchange rate. The generalized variance decompositions show that determinants of the real exchange rate, in descending order of importance include net capital inflows and their volatility (jointly), government expenditure, current account surplus and the money supply. A preliminary analysis suggests that a similar analysis can be performed for the foreign exchange reserves held by the RBI.

Keywords: real exchange rate; capital flows; foreign exchange reserves; cointegration (search for similar items in EconPapers)
JEL-codes: C32 F31 F41 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2006-08
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-fmk, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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