Exchange Rate Determination Random Walk Hypotesis Revisited汇率决定的随机游走假说修正.docVIP

Exchange Rate Determination: Random Walk Hypothesis Revisited( Selvam V and Purna Chandra Padhan Abstract Tracing the issue of exchange rate volatility and reviewing some prominent studies, the paper primarily focuses on empirical verification of Random Walk Hypothesis pertaining to exchange rate of Indian Rupee vis-à-vis U.S. Dollar applying various unit root tests such as ADF, PP, and Ng-P tests. Using monthly data for exchange rate of Indian Rupee against U.S. Dollar for the periods 1950-2005 and 1973-2005 and real and nominal effective exchange rates export and trade based data for the period 1973-2005, the study finds in support of the validity of Random Walk Hypothesis. I. Introduction The search for appropriate model for explaining and predicting exchange rate movements as a result of failures of different theoretical explanations historically has kept the subject matter of exchange rate determination alive for decades. The subject attracted greater attention from both policy makers and researchers after the advent of generalised floating in 1973. The shift from fixed exchange rate regime to floating regime gave vent to the question of whether macroeconomic fundamentals such as interest rates, money supply, inflation, stock prices are instrumental in determining the exchange rates or whether exchange rates are completely left to the market forces such as demand and supply to determine. For many years it has been a major concern for economists, statisticians and mathematicians to develop a suitable model to explain and predict the behaviour of various macroeconomic fundamentals and exchange rates. Numerous theoretical propositions and models developed have been extensively employed to study the behaviour of these variables. Although some of the models were successful under highly restrictive assumptions, most of the models were unsuccessful in explaining and predicting the behaviour. The random walk model was one such model, originally developed to predic