Dynamic Interactions of Exchange Rates, Stock Prices and Macroeconomic Variables in India

By: Material type: ArticleArticleLanguage: ENG Series: ; 14Publication details: Aug 2008 0Edition: 8Description: 19-33 PpSubject(s): DDC classification:
  •  Ray
Online resources: Summary: This study investigates the relationship among the exchange rates (EX), stock prices (Sensex), and select macroeconomic variables, such as output (IIP), money supply (M3) and capital flows (FII), in the Indian context in the post-reform era. The findings of the study indicate that in the long-run, the exchange rates are positively related to stock prices and money supply, and negatively related to output and foreign institutional investments. The Granger causality test helps detect the `feedback' relationship between the economy and the exchange market. The innovation analysis confirms the dynamic interaction of exchange rate with itself, its own key macroeconomic variables and stock prices.
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This study investigates the relationship among the exchange rates (EX), stock prices (Sensex), and select macroeconomic variables, such as output (IIP), money supply (M3) and capital flows (FII), in the Indian context in the post-reform era. The findings of the study indicate that in the long-run, the exchange rates are positively related to stock prices and money supply, and negatively related to output and foreign institutional investments. The Granger causality test helps detect the `feedback' relationship between the economy and the exchange market. The innovation analysis confirms the dynamic interaction of exchange rate with itself, its own key macroeconomic variables and stock prices.

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