Indian Journal of Economics and Development

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Macro-Economic Factors Causing Variation in the Exchange Rate of BRICS Countries-A Study


Affiliations
1 Dnyanprassarak Mandal’s College and Research Centre, Assagao, Goa, India
 

Objectives: This study aims to identify and analyze which macro-economic factors have an influence on the exchange rate of the currency of each country belonging to BRICS by analysing the long term and short term relationship between the exchange rate and factors such as interest rates, inflation index, and money supply, exports and imports variables.

Methods/Statistical Analysis: In order to achieve the objectives of this study OLS model and Johansens co- integration is applied, data is also tested for stationarity using ADF test. Johansens co-integration is employed to analyze the long term relationship between the variables and the short term relationship between the variables is analyzed using Vector error correction model.

Findings: OLS model indicated that the exchange rate of the Brazilian Real and Chinese Yuan is affected by interest rates. However in case of the Russian Ruble, inflation and money supply have an impact in addition to interest rates. The exchange rate of the Indian Rupee is affected by imports and the South African Rand is affected by imports as well as interest rates. Johansens co-integration test indicated that all the variables are co- integrated in the long run. The results of VECM indicated that Russian Ruble is the only currency that is affected by the select macro-economic variables in the long run. However in the short run the Russian Ruble is found to be affected by inflation rates, export rates and interest rates. Similarly interest rates have an impact on the Chinese Yuan and inflation rates have an impact on the Brazilian real in the short run.

Applications/Improvements: This study can help various stakeholders of BRICS economies to understand which factors have a significant impact on their exchange rate so as to control such factors thereby positively enhancing the economic growth and development of the country.


Keywords

Exchange Rates, BRICS, OLS, and VECM.
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  • Macro-Economic Factors Causing Variation in the Exchange Rate of BRICS Countries-A Study

Abstract Views: 269  |  PDF Views: 181

Authors

Sanjeeta Shirodkar
Dnyanprassarak Mandal’s College and Research Centre, Assagao, Goa, India
Karen Fernandes
Dnyanprassarak Mandal’s College and Research Centre, Assagao, Goa, India

Abstract


Objectives: This study aims to identify and analyze which macro-economic factors have an influence on the exchange rate of the currency of each country belonging to BRICS by analysing the long term and short term relationship between the exchange rate and factors such as interest rates, inflation index, and money supply, exports and imports variables.

Methods/Statistical Analysis: In order to achieve the objectives of this study OLS model and Johansens co- integration is applied, data is also tested for stationarity using ADF test. Johansens co-integration is employed to analyze the long term relationship between the variables and the short term relationship between the variables is analyzed using Vector error correction model.

Findings: OLS model indicated that the exchange rate of the Brazilian Real and Chinese Yuan is affected by interest rates. However in case of the Russian Ruble, inflation and money supply have an impact in addition to interest rates. The exchange rate of the Indian Rupee is affected by imports and the South African Rand is affected by imports as well as interest rates. Johansens co-integration test indicated that all the variables are co- integrated in the long run. The results of VECM indicated that Russian Ruble is the only currency that is affected by the select macro-economic variables in the long run. However in the short run the Russian Ruble is found to be affected by inflation rates, export rates and interest rates. Similarly interest rates have an impact on the Chinese Yuan and inflation rates have an impact on the Brazilian real in the short run.

Applications/Improvements: This study can help various stakeholders of BRICS economies to understand which factors have a significant impact on their exchange rate so as to control such factors thereby positively enhancing the economic growth and development of the country.


Keywords


Exchange Rates, BRICS, OLS, and VECM.

References