Capital-enhanced equilibrium exchange rate: evidence from India |
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| Authors: | K P Prabheesh Bhavesh Garg |
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| Institution: | Department of Liberal Arts, Indian Institute of Technology, Hyderabad, India |
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| Abstract: | This article examines the validity of the capital-enhanced equilibrium exchange rate (CHEER) approach using quarterly data ranging from 1993Q1 to 2016Q2. Using unit root break test and structural break cointegration technique, our overall results indicated that the CHEER is invalidated once a structural break is accounted for in the cointegration relationship. The rejection of the validity could be attributed to the asymmetry in the capital flows and exchange rates being not fully flexible. |
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| Keywords: | Purchasing power parity interest rate differentials exchange rate structural breaks cointegration |
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