AN ECONOMETRICS ANALYSIS OF EXCHANGE RATE OF INDIA: ARCH FAMILY MODEL
Abstract
The paper focuses on the various ARCH family model for exchange rate of the Indian rupee (monthly average and end-month rates) vis-à-vis the SDR, US dollar, Pound Sterling, Euro and Japanese Yen for the period march 1992- July 2017. The unit root test results indicate that all the variables are non-stationary at level but it becomes stationary at first difference. Further, the presence of ARCH effect in the exchange rate series are measured by the ARCH-LM test and residual plot. Once the ARCH effect is observed then we chose the best fitted model on the basis of Akaike Information Criterion (AIC) and Schwarz Information Criterion (SIC). The mixed results have been found for exchange rate of the Indian rupee (monthly average and end-month rates) vis-à-vis the SDR, US dollar, Pound Sterling, Euro and Japanese Yen for the period march 1992- July 2017 [i.e. in case of SDR (average ) we chose ARCH-05 model and SDR (End-month) GARCH model have chosen and so on]. The heteroskedasticity test result indicates that the selected model for the exchange rate of the Indian rupee (monthly average and end-month rates) in the selected currency of the world for the period march 1992- July 2017 are free the problem of heteroskedasticity, except USA (End-month) and Japanese Yen (Average) for EGARCH model. And, finally the autocorrelation test result indicates that the selected model for the exchange rate of the Indian rupee (monthly average and endmonth rates) in the selected currency of the world for the period march 1992- July 2017 are free the problem of autocorrelation, except USA (End-month) and Japanese Yen (Average) for EGARCH model.
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