Causal analysis of the relationship among inflation, interest rate and exchange rate: Evidence from India
Dr. Veerangna Singh and Dr. Swami Prasad Saxena
Exchange rate, one of the crucial variables that determines country’s competitiveness in the international market depends on several factors, hence is volatile and unpredictable. Besides exchange rate other macroeconomic variables, especially interest rate and inflation also have impact on international market. Present paper is an attempt to know the direction of causality among inflation, interest rate and exchange rate, and examine the impact of impulses or shocks on variations in selected variables considering monthly data for April 2001 to March 2018. VAR granger causality test, the study observes unidirectional causality running from interest rate to exchange rate, interest rate to inflation (CPI), and exchange rate to CPI. The results of SVAR indicate that exchange rate is majorly impacted by interest rate and less by CPI. The impact of exchange rate on CPI is almost negligible.
Dr. Veerangna Singh, Dr. Swami Prasad Saxena. Causal analysis of the relationship among inflation, interest rate and exchange rate: Evidence from India. Int J Foreign Trade Int Bus 2022;4(2):45-51. DOI: 10.33545/26633140.2022.v4.i2a.76