Does Gold and FPI Influence USD/INR Exchange Rates? Evidence from Autoregressive Distributed Lag Approach
Keywords:Exchange Rate, Gold Prices, FPI, Autoregressive Distributive Lag (ARDL) model, Bounds Test
Exchange rates have a major impact on a country’s trade in not only ascertaining the prices but also deciding upon the hedgingrequirements in order to mitigate the risks associated with its fluctuations. These rates have key implications on the way a country’s economy grows and performs.Thepresent study examinesthe impact of important macro-economic indicators (Gold prices and Foreign Portfolio Investments (FPI)) on the exchange rates in the long run and short run. The monthly data was collected from 2003 to 2019. The study employed Auto Regressive Distributed Lag Model (ARDL), a Bounds test to find the long-run and short-run association among the macro-economic variables and the exchange rate. The results show that there exists a short-run and long-run relationship betweenthe USD/INR exchange rate and the macro-economic indicators, Gold and FPI.
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