FORECASTING EXCHANGE RATE VOLATILITY IN INDIA UNDER UNIVARIATE AND MULTIVARIATE ANALYSIS

Authors

Sushil Kumar Rai, University of Petroleum and Energy Studies, Dehradun, IndiaFollow
Akhilesh Kumar Sharma, Institute for Studies in Industrial Development, New Delhi, IndiaFollow

Document Type

Article

Abstract

This paper addresses the issue of variation in the exchange rate of the Indian Rupee (IR) against the US Dollar (USD) under a flexible exchange rate regime using monthly data spanning January 2005 to December 2020. We find that exchange rate volatility is largely affected by its lag value rather than the inflation rate and the interest rate differential. The results of forecast accuracy suggest that the prediction performance of the ARIMA model is better than the VAR model. We also find that apart from other factors, the sharp changes in the exchange rate should be controlled by the economy because its effect will be reflected in the next period and thus creating a chain event to bring further instability in the exchange rate

Recommended Citation

Rai, Sushil Kumar and Sharma, Akhilesh Kumar (2023) "FORECASTING EXCHANGE RATE VOLATILITY IN INDIA UNDER UNIVARIATE AND MULTIVARIATE ANALYSIS," Bulletin of Monetary Economics and Banking: Vol. 26: No. 1, Article 14.
DOI: https://doi.org/10.59091/1410-8046.2050
Available at: https://bulletin.bmeb-bi.org/bmeb/vol26/iss1/14

First Page

179

Last Page

194

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

India

Affiliation

Institute for Studies in Industrial Development