Cointegration Analysis of Selected Currency Pairs Traded in Indian Foreign Exchange Market

The main purpose of this research paper is to explore and understand the nature of association and the possible existence of a short run and long run relationship between US Dollar, EURO, British Pound and Japanese Yen. To find out the relationship among currencies USD/INR, EUR/INR, GBP/INR and JPY/INR pairs are considered. The main idea is to know how these selected indicators are related to each other. The daily basis 2781 observations for all four variables from year 2007 to 2018 are taken into consideration. Data are collected from website of Reserve Bank of India. The stationarity of time series is checked and differentiated as per requirement. Johansen co-integration test to know the long run relationship between variables is used. The result shows that there is no co-integration equation among the variables. The short run relationship is examined with help of Vector Auto-regression (VAR) model and the short run relationship within different lags of variables has been identified. The correlation among variables has been examined with help of correlation matrix and Granger cause test is also used to understand the causal effect