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Rupee-Dollar Exchange Rate and Macroeconomic Fundamentals: An Empirical Analysis Using Flexible-Price Monetary Model

C S Shylajan, Sreejesh S, Suresh K G


This paper empirically investigates the link between Indian rupee-US dollar exchange rates and a set of macroeconomic fundamentals using flexible-price monetary model (FPMM) for the period 1996 M1 to 2010 M12. The Johanson-Juselius cointegration test result indicates the existence of long run relationship between exchange rate and the macroeconomic variables, implying the validity of FPMM model in Indian context even though there is no short run casual relationship exist in the VECM analysis.


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