authors
Nagendra Marisetty

abstract

This study investigates the predictive relationship between major global currency pairs and the USD/INR exchange rate over a 25-year period from 2000 to 2024, using 300 monthly observations. The analysis covers thirteen currencies across Asian, European, emerging, and major global markets, examining their influence on USD/INR from both domestic (XXX/INR) and international (USD/XXX) perspectives. Four econometric frameworks Ordinary Least Squares (OLS), Heteroskedasticity and Serial Correlation Consistent estimation (HSC), GARCH (1,1), and Vector Autoregressive (VAR) models are applied to capture linear relationships, volatility dynamics, and dynamic spillover effects. The results reveal that select currencies, such as USD/AUD, USD/ZAR, and USD/JPY, exert significant influence on USD/INR, while currencies with pegged or managed regimes display limited impact.

Volatility-adjusted models, particularly GARCH and VAR, offer superior explanatory power, highlighting the importance of accounting for heteroskedasticity and market interconnections in exchange rate modeling. The analysis concludes that regional and emerging-market currencies play a dominant role in shaping USD/INR movements, whereas developed and pegged currencies have relatively marginal effects. The findings underscore the critical need for policymakers, investors, and market participants to consider both global and regional currency dynamics for effective risk management and exchange rate forecasting. Overall, the study confirms that advanced econometric and volatility-based models provide more accurate and reliable insights into INR exchange rate behavior, reflecting the interconnected and heterogeneous nature of global currency markets.