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Research on the impact of exchange rate volatility on the trade flows has now entered into a new direction of asymmetry analysis. It has been argued by previous researchers, that the rate at which trade flows respond to an increase in volatility could be different than the rate at which they respond to a decrease in volatility, hence asymmetric effects. We consider trade flows of 65 industries that trade between India and the U.S. to show that indeed short-run effects of exchange rate volatility are asymmetric in 58 U.S. exporting industries to India and 55 U.S. importing industries from India. However, short-run effects last into the long run in 45 exporting and 33 importing industries. [ABSTRACT FROM AUTHOR]

This study explores the asymmetric effect of exchange rate volatility on tourism demand in India from January 2006 to April 2018. Tourism demand is captured from a twin perspective—quantity and value. While quantity is represented by foreign tourist arrival in India, earnings from foreign tourists are used to represent value. The study is unique from a methodological point of view as it makes the first ever application of the nonlinear autoregressive distributed lag model of Shin, Yu, and Greenwood-Nimmo (2014), in the tourism demand literature to capture nonlinearity simultaneously in the short- as well as long-run. Results of our analysis show that tourism demand in India responds asymmetrically to both nominal and real exchange rate volatility. Also, the long-run effects of exchange rate uncertainty are shown to be more damaging than the short-run effects. Our findings are fairly robust to alternative specifications. [ABSTRACT FROM AUTHOR]

Central banks seek to guide the foreign exchange market through interventions. However, the success of the central bank in guiding the forex markets, much like the biblical Moses, depends on the differing perceptions and resulting bid–ask spreads of market participants following intervention. Using high-frequency data, we study the behaviour of exchange rate volatility (as reflected in change in bid–ask spreads) following intervention by Reserve Bank of India, India's central bank. We find that intervention increases the probability of volatility being in higher ranges. Event-wise analysis shows an increase in volatility in shorter time frames and a decrease in volatility over the longer time frame of the day, following intervention. [ABSTRACT FROM AUTHOR]

Purpose: This study aims to examine the relationship between exchange rate risk and export at commodity level for the Indian case. Design/methodology/approach: The monthly panel data used for analysis are at a disaggregated level, which cover around 100 products, encompassing all merchandize sectors for the period spanning from 2012:12 to 2017:11. To measure the exchange rate volatility, the authors use real as well as nominal exchange rate concepts and predict the volatility of exchange rate using the autoregressive conditional heteroscedastic-based model. They use pooled mean group, mean group and common correlated effects mean group estimator that is suitable for the objectives and data frequency. Findings: The empirical analysis indicates both short- and long-term negative effects of exchange rate variations on exporting. Specifically, in the long run, real exchange rate as well as nominal exchange rate volatility has significant effects on export performance, yet, the effects of uncertainty of nominal exchange rate is much severe and intense. In the short run, it is the nominal exchange rate uncertainty that hurts exports from India. Nevertheless, the short-run effect is much lesser than the long-run, supporting the argument that the short-term exchange rate risk can be hedged, at least partially, through financial instruments; however, uncertainty of the long-term horizon cannot be hedged easily and cost-effectively. Practical implications: Reducing uncertainty and attaining stability in exchange rate and price level should be an important policy objective in developing countries such as India to achieve higher export growth, both in the short and long run. Originality/value: Unlike previous studies, this paper tests the relationship using micro-level data and uses advanced econometric techniques that are likely to provide more precise information regarding the association between exchange rate volatility and trade flows. [ABSTRACT FROM AUTHOR]

This paper studies the effect of exchange rates' volatility on India's imports on a balanced panel of 73 commodities spanned from April 2013 to October 2016. Rather than using cross-country bilateral import flows, we test the relationship at the commodity level using disaggregated trade data with monthly frequency. Generalized autoregressive conditional heteroscedasticity model is used for estimating exchange rate. We employ pooled mean group estimator for simultaneously assessing long- and short-run association between nominal exchange rate volatility and import volume. In the long-run, for all commodities, a 100% increase in volatility results in a 12% drop in India's imports. A significant dampening impact of volatility of exchange rate on imports is evidenced also in short-run. However, at the disaggregate level, imports in the agricultural and allied sector are found to be relatively more sensitive to exchange rate volatility as compared to the manufacturing sector. We also conducted a time series analysis for the aggregate data covering both pre- and post-crisis period. The results validate the findings of commodities-level panel data analysis. This paper concludes with policy implications of our findings. [ABSTRACT FROM AUTHOR]

This study extends previous literature by examining the effect of extremely large to extremely small changes in the exchange rate volatility on the US exports to developing countries such as Brazil, India, Mexico, and South Africa. We use novel approach called multiple threshold nonlinear ARDL (MTNARDL) and compare its results with ARDL and nonlinear ARDL models. The ARDL model supports insignificant results, whereas standard nonlinear ARDL model indicates asymmetric effect of exchange rate volatility on the US exports to Mexico only. Finally, the MTNARLD model indicates that in the short run, the effect of extremely large changes in exchange rate volatility does not significantly differ from the effect of small changes in exchange rate volatility on the US exports to all sample countries. Whereas in the long run, the effect of extremely large changes in exchange rate volatility is significantly different from the effect of small changes in exchange rate volatility on the US exports to all sample countries. The findings of this novel methodology suggest different policies in the long run and short run. [ABSTRACT FROM AUTHOR]

The analysis of effectiveness of central bank intervention has yielded mixed empirical evidence and remains inconclusive to date. Managed float regimes can offer vital clues on this debate. We study the impact of central bank intervention on exchange rate direction, volatility and misalignment using data from the Indian managed float, characterised by consistent intervention by India's central bank. The paper uses event study methodology given the clustered and non-stochastic nature of intervention. We find that direct intervention, through sale or purchase of foreign currency, is not successful in influencing the direction of exchange rate movement and does not have any statistically significant impact on volatility as corroborated by both monthly and daily data. [ABSTRACT FROM AUTHOR]

This paper looks at the determinants and effects of exchange rate exposure using data on 500 Indian firms over the period 1995–2011. Unlike the existing papers in the literature, we use a measure of ‘operational’ currency exposure based on foreign currency revenues and costs of firms. Among other factors, exchange rate volatility appears as a significant determinant of average firm-level exposure with the direction of relationship supporting the presence of ‘Moral Hazard’ in the firm’s risk-taking behaviour. Further, large ‘operational’ exposure is associated with significantly lower output growth, profitability and capital expenditure during episodes of large currency depreciation at the firm level. Together, these indicate that the policy-makers must take into account the incentive effects of their intervention in foreign exchange markets. [ABSTRACT FROM PUBLISHER]

The article focuses on domestically stable financial openness by considering financial openness and exchange rate stability together to develop the stability in openness index (SIO). It analyzes the relationship between stability in openness and growth for emerging economies, which include China, Brazil, India and South Africa, with England as a benchmark. The article also suggests that stability in openness has a positive impact on economic growth.

This study estimates the balance of trade model similar to Rose (1991) to test the J-curve hypothesis and analyse the effect of conditional exchange rate volatility on the balance of trade in India. The model is estimated on quarterly data from 1975:02 to 1996:03 and the exchange rate is measured alternatively in terms of the trade and export weighted real effective exchange rate. The model variables are tied together in a long run equilibrium relationship. The study does not find any evidence for the presence of the J-curve effect in the balance of trade. The study finds the presence of weak ARCH but strong GARCH effects in the exchange rate series. But this exchange rate volatility does not play any significant role in affecting the balance of trade in India. [ABSTRACT FROM AUTHOR]