Nexus between the Exchange Rate Spill-Over Movement and Macroeconomic Variables in South Asian Countries

Abstract

The objective of this study was to examine the relationship between the Exchange Rate spill-over and Macro Economic Determinants in selected South Asian Countries (Afghanistan, India and Pakistan). The study employed 10 years of data from 2011 to 2021 of macroeconomic variables such as TIN- Total Investment, INF - Inflation, IMP - Imports, EXP - Exports, GTE - Government Total Expenditure, GNL - Government Net Lending, ER – Exchange Rate. The result evidenced that selected macroeconomic variables changes doesn’t have any connection in the changes of ER of India, Pakistan and Afghanistan. The ER changes are highly autocorrelated and act highly independence in the last ten years. Moreover, the depreciation of currency values replicates economic instability and drastically straight fall. Asian countries operating their currency based on a managed floating ER regime. It’s marking a market-determined ER regime of the currency with provision for timely intervention by the central bank. Managed float regime is an international financial environment in which ERs fluctuates from day to day, but central banks attempt to influence their countries’ ERs by buying and selling currencies to maintain a certain range. This study would be useful to the retail investors to speculate and arbitrage and (economic policy) policymakers to monitor, Forecasting and Simulation the ER movements.