Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/329022 
Year of Publication: 
2024
Citation: 
[Journal:] Economies [ISSN:] 2227-7099 [Volume:] 12 [Issue:] 4 [Article No.:] 96 [Year:] 2024 [Pages:] 1-21
Publisher: 
MDPI, Basel
Abstract: 
In this study spanning four decades, we explored the relationship between the Reserve Bank of India's (RBI) interventions and the validity of Purchasing Power Parity (PPP) across two distinct exchange rate regimes: the fixed exchange rate regime (1975-1993) and the managed floating regime (1994-2015). Applying an error correction model (VECM), our analysis reveals that under the fixed exchange rate regime, the environment is conducive to PPP due to frequent interventions by the RBI. However, in the managed floating regime, selective interventions weaken the applicability of PPP. These findings align with prior research but also hint at the limitations of linear models in capturing the intricate dynamics of PPP when central banks are involved. Nonlinear models may hold the key to unraveling the relationship more effectively.
Subjects: 
ASEAN
central bank interventions
foreign exchange rate
India
purchasing power parity
VECM
JEL: 
E31
F31
F15
C32
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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