Coupling of Currencies: An INR and USD Perspective

  • Mayuree Barik Western Michigan University, USA
  • Aparna Rao Virginia Commonwealth University, Virginia
Keywords: Bivariate Granger Causality, Bretton Woods System, Currency Coupling, Currency Volatility, Demonetisation, Exchange Rates


This paper aims to explore the relationship between the Indian Rupees (INR) and USDollars (USD). It further tries to identify whether the volatility of exchange rates is affected by various events. Bivariate causality tests have been run on the exchange rates of INR and USD which have revealed a coupled relationship between them. Further, it was found that the magnitude of the impact on the volatility of exchange rates varies according to the nature of the event.


Arora, A., Rathore, H., Agrawal, R. R., Chavan, S., & Nayak, S. (n.d.). What determines US Dollar - Indian Rupee exchange rate movements - An empirical analysis of the falling Rupee. Indian Institute of Technology, 1-20.

Ajevskis, V., & Vitola, K. (2011). Fixed Exchange rate versus inflation targeting: evidence from DSGE modelling. Working Papers 2011/02, Latvijas Banka, (January 2011).

Aleemi, A. R., Tariq, M., & Ahmed, S. (2016). The role of Gold Prices, exchange rate and interest rate on the continuity of inflation in Pakistan. Pakistan Business Review, (March), 37–54.

Ball, L. (1999). Policy Rules for Open Economies (Vol. I).

Barbosa-Filho, N. (2006). Exchange rates, growth and inflation. Annual Conference on Development and Change, (September), 17–20. Retrieved from ideas/ policy_library/ data/01383/_res/id=sa_File1/Barbosa_paper_v1.pdf

Blackwell, R. D., Chandra, N., & Clary, C. (2011). The United States and India: A Shared strategic future. Aspen Institute India, 1-67.

Choudhri, E. U., & Hakura, D. S. (2003). Exchange rate pass-through to domestic prices: does the inflationary environment matter?, (December 2001, Revised 2003).

Cushman, D. O. (1983). The effects of real exchange rate risk on international trade. Journal of International Economics, 45-63.

Dornbusch, R. & Fischer, S. (1980). Exchange rates and the current account. The American Economic Review, 960-971.

Dornbusch, R. (1976). Expectations and exchange rate dynamics. Journal of Political Economy, 84(6), 1161-1176.

El Achnab, H. J. (2016). Exchange rate regime, inflation targeting and macroeconomic performance. International Journal of Economics and Finance, 8(8), 143.

Fama, E. F. (1990). Stock returns, expected returns and real activity. The Journal of Finance, 1089 - 1108.

Flannery, M. J., & James, C. M. (1984). The effect of interest rate changes on the common stock returns of financial institutions. The Journal of Finance, 39(4), 1141–1153.

Frankel, J. A. (1979). A theory of floating exchange rates based on real interest differentials. The American Economic Review, 69(4), 610–622. Retrieved from

French, K. R., Ruback, R. S., & Schwert, G. W. (1983). Effects of nominal contracting on stock returns. The Journal of Political Economy, 91(1), 70–96. Retrieved from Effects of Nominal Contracting o,

Gal, J., & Monacelli, T. (2005). Monetary policy and exchange rate volatility in a small open economy, 707–734.

Ghosh, A. R., Gulde, A.-M., Ostry, J. D., & Wolf, H. (1996). Does the exchange rate regime matter for international trade? IMF Economic Issues, 2, 19.

Ghosh, B. (2015). A statistical analysis of the stochastic drift between Sensex & Nifty- An in-depth study. International Journal of Innovative Research & Development, 4(5), 12–16. https:// 10.2307/ 1905515.E.L.Ghosh, B. (2016). Do the dragons move together; co-integrated and causality study among chinese bourses-A curious case of Hang Seng and Shanghai Stock Exchange. Al-Barkaat Journal of Finance & Management, 8(2), 1.

Hassanain, K. (2005). The real exchange rate and the black market exchange rate in developing countries. Empirical Economics, 30(2), 483–492.

Heckerman, D. (1972). The exchange risks of foreign operations. The Journal of Business, 45(1), 42–48.

Jorion, P. (1991). The pricing of exchange rate risk in the stock market. The Journal of Financial and QuantitativeAnalysis, 26(3), 363–376.

Jorion, P., & Multinationals, U. S. (2018). The exchange-rate exposure of U. S. multinationals. The Journal of Business, 63(3), 331-345.

Levy-yeyati, B. E., & Sturzenegger, F. (2003). American Economic association to float or to fix : evidence on the impact of exchange rate regimes on growth. The American Economic Review, 93(4), 1173–1193.

Levy-Yeyati, E., & Sturzenegger, F. (2001). Exchange Rate regimes and economic performance, 47, 62–98.

Mark, N. C. (1995). American Economic Association Exchange rates and fundamentals : evidence on long-horizon predictability. The American Economic Review, 85(1), 201-218. Published by American Economic, 85(1), 201–218.

Martin, M. F., & Kronstadt, K. (2007). India - U.S. Economic and Trade Relations. CRS Report for Congress, 1-66.

Misra, P., & Gupta, J. (2017). US-INR Exchange Rate Movements: An Empirical Analysis of Macroeconomic Determinants. Amity Journal of Economics, 23-34.

Naghdi, Y., & Kaghazian, S. (2015). The Effects of asymmetric transmission of exchange rate on inflation in Iran: Application Of threshold models. Studies in Business and Economics, 10(2), 99–114.

Plantin, G., & Shin, H. S. (2018). Exchange rates and monetary spillovers, 13, 637–666.

Shapiro, A. C. (1975). American Finance Association Exchange Rate changes, inflation, and the value of the multinational corporation. The Journal of Finance, 30(2), Papers and Proceedings of the Thirty-Third Annual Meeting, 30(2).

Singh, A., Mishra, V., & Singh, A. B. (2016). Impact of Rupee-Dollar Fluctuations on Indian Economy. Retrieved April, 18, 2018.

Taylor, J. B. (2001). The role of the exchange rate in monetary-policy rules. American Economic Review, 91(2), 263-267.

Wessa. (2016). Retrieved from http:// rwasp_ grangercausality.wasp/