BREXIT REFERENDUM: IMPACT ON EXCHANGE RATE (POUND/ INR)

Abstract

Present study is an attempt to empirically analyse the exchange rate volatility of Pound/INR with respect to Brexit referendum and its policy implications on Indian economy. The exchange rate data of Pound/INR collected over a span of six years, split into two halves: pre-Brexit-period (1/7/2013 to 23/06/2016) and post-Brexit-period (24/06/2016 to 31/06/2019). The data series were tested empirically using GARCH (1,1) model which represented that beta coefficient value is greater in post-Brexit period indicating that volatility in that period is persistent and that takes long time to vanish and the alpha coefficient is higher in case of pre-Brexit period that means the volatility reaction to market movements are quite intense than the post-Brexit period. Vote in favour of Brexit on 23rd June 2016 started the firing from gun on pounds downward trend which was further followed by initial sharp drop and various slumps and persistent decline. This left the pound sterling to Indian rupee exchange rate 8% lower than pre-referendum levels.