Abstract
Based on a simultaneous-equation model of demand and supply, this paper finds that the Indian rupee/US dollar (INR/USD) exchange rate is positively associated with the US real government bond yield, Indian real GDP, the US real stock price and the expected INR/USD exchange rate and is negatively affected by the Indian real interest rate, US real GDP and the Indian real stock price. The finding that a higher Indian real interest rate would cause the Indian rupee to appreciate against the US dollar is consistent with the traditional view.
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