Impact of Exchange Rate Volatility on Investment: Evidence from India

Dhasmana, Anubha

doi:10.2139/ssrn.2996927

Cited by 2 publications

(3 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…For more details, follow the footnote of Figure 5. This is to be recognized that the exchange rate uncertainties in India, affect India's exports and imports, and ultimately the current account balance and private investment (Dhasmana, 2017;Panda & Mohanty, 2015). China is the exception that it transmits 80% of its shocks to India via the trade channel as a neighbouring country in the Asian region.…”

Section: Discussion On Channels Of Transmission Of Shocksmentioning

confidence: 99%

See 1 more Smart Citation

Untitled

2020

Asian Development Policy Review

View full text Add to dashboard Cite

This study measures the extent of crosscountry financial shock spillover by utilizing Diebold and Yilmaz (2009); Diebold and Yilmaz (2012) method and using the impulse response function of the VAR model, it explores the important channel through which financial shocks transmit among the US, Japan, Germany, China, India, and Russia. The result shows that total financial shock spillover is 43.60%, indicating that slightly more than two-fifths of the total variance of the forecast errors for six countries under consideration is explained by their shock spillover across countries. The finding is observed to be robust. Using the impulse response of the VAR model, we examined the relative importance of channels viz. financial, exchange rate, and trade. We observed that 46% of external financial shocks transmit to US through the financial channel, while it is predominantly the trade channel through which shocks transmit to Japan (43%), Germany (43%), and China (76%). India receives major shocks (74%) through exchange rate. Finally, trade and financial channels are important for Russia through which 76% of shocks come from external financial markets. The spillover is observed to be high which could be because of the increasing deregulation of financial markets including capital mobility in 21 st century. Contribution/ Originality: This study contributes in four ways: (i) it considers both advanced and emerging economies, (ii) captures financial shocks through composite interest rate index (IRI), (iii) employs spillover method developed by Diebold and Yilmaz (2009); Diebold and Yilmaz (2012) and (iv) examines the contribution of channels which previous literature did not address. 1. INTRODUCTION The crosscountry financial shock spillover remains alive in the history of global economy. For instance, the Asian Financial Crisis (1997-98) and the Global Financial Crisis (2007-09) 1 had the genesis in specific regions and 1 Asian Financial Crisis (1997-98) alternatively called as Asian Contagion defined as a sequence of currency devaluation and other follow up of economic events that stared in 1997 and impacted many countries. Global Financial Crisis (2007-09) began in 2007 from subprime mortgage market in the USA and took the turn of a great depression of 1930's. It advanced into fullblown global banking crisis with the collapse of the Lehman Brother's Investment Bank in 2008.

show abstract

Section: Discussion On Channels Of Transmission Of Shocksmentioning

confidence: 99%

“…rate channel worsens India's financial markets. Exchange rate uncertainties affect India's exports, current account balance, and domestic private sector investment (Dhasmana, 2017;Panda & Mohanty, 2015). Finally, Russia transmits its shocks to Germany.…”

Section: Visualisation Of Spillovermentioning

confidence: 99%

Untitled

2020

Asian Development Policy Review

View full text Add to dashboard Cite

show abstract

“…Так, в работе [9] такое влияние для стран с формирующимися рынками оценивается как незначимое, в то время как в работе [10] -как значимо отрицательное. Другие исследования указывают на важность нелинейных эффектов: результаты [11][12] демонстрируют, что как для внутренних инвестиций, так и для прямых иностранных инвестиций маржинальное негативное влияние волатильности увеличивается с ростом этой волатильности; в свою очередь, согласно [13][14] значимый отрицательный эффект волатильности на инвестиции имеет место только для стран с низким уровнем финансового развития.…”

Section: волатильность обменного курса и экономический рост: обзор лиunclassified

Impact of Fiscal Rules on Exchange Rate Volatility

Prilepskiy¹

2018

View full text Add to dashboard Cite

Decrease of dependency level between oil prices and ruble exchange rate is among the key goals of a new version of Russia's fiscal rule. This study analyzes motivation to adopt this goal by reviewing the estimates for impact of exchange rate volatility on economic growth. It proceeds to assessment of commodity-exporting countries experience and considers the effects of fiscal rule implementation on real and nominal exchange rate volatility. Moreover, the author conducts the long-term scenario analysis of ruble exchange rate volatility for different versions of the fiscal rule. The main results are as follows. First, reduction of the exchange rate volatility leads to a modest increase in investment and export growth. Second, in general, adoption of fiscal rules does not result in reduction of the exchange rate fluctuations, though in the case of Russia since 2017 ruble exchange rate has been significantly de-linked from oil prices. Finally, according to scenario analysis compared with other versions of the fiscal rule (2013 Russian version; Norwegian version; targeting non-oil deficit; tying expenditure growth to GDP growth; no fiscal rule) the current Russian version yields a substantial decrease in exchange rate volatility, though its performance could be further improved by introduction of a mechanism for the base oil price modification in case of a long-term fall in actual oil prices below 40$/barrel in constant 2017 dollars (which is the base price in the current version of the rule).

show abstract

Impact of Exchange Rate Volatility on Investment: Evidence from India

Cited by 2 publications

References 0 publications

Untitled

Untitled

Impact of Fiscal Rules on Exchange Rate Volatility

Contact Info

Product

Resources

About