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Interaction of real effective exchange rate with economic growth via openness of the economy: Empirical evidence from India
Author(s) -
Jeihar Ranjan,
Sethi Narayan
Publication year - 2020
Publication title -
journal of public affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.221
H-Index - 20
eISSN - 1479-1854
pISSN - 1472-3891
DOI - 10.1002/pa.2042
Subject(s) - openness to experience , economics , exchange rate , empirical evidence , classical economics , monetary economics , psychology , social psychology , philosophy , epistemology
This paper examines the interaction between real effective exchange rate (REER) with select macroeconomic variables such as gross domestic product (GDP), foreign direct investment, foreign institutional investors (FII), fiscal deficits, terms of trade, trade openness, and foreign exchange reserves from 1981–2017. Autoregressive distributed lag bounds test results confirm the existence of long‐run relationships among the considered variables. The study finds that among the selected macroeconomic variables, GDP and remittances have positive and significant impact on REER. The study also reveals that although the variables official development assistance, FII, and fiscal deficit have positive impacts on REER, the results are not statistically significant. Further, our study indicated that the speed of convergence of REER towards long‐run equilibrium is 30% per annum, which is below standard in nature.