Abstract
The study has investigated the relationship between real effective exchange rate and capital flows namely FDI, FPI and other investments while controlling the impact of other policy variables such as Trade openness, government spending and foreign exchange reserves for BRICS economies for the study period of 1994Q1 to 2019Q2 by using felicitous econometrics techniques such as Augmented Dickey-Fuller Unit Root Test, Granger Causality Test, and ARDL Bound Testing analysis. Data has been taken from various databases such as International Monetary Fund (IMF), OECD database, World Bank, and RBI. Results have reported the positive and significant relationship between real effective exchange rate and FPI, trade openness and reserve position while no significant impact of FDI on Real exchange rate in all BRICS economies. Further, the speed of adjustment from last year’s disequilibrium to the present year’s equilibrium is 11.15%, 14.53% and 8.13% in Russia, India and South Africa, respectively.
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