Impact of Macroeconomic Variables on Exchange Rate Volatility in India

Exchange Rate is one of the most important factor for any economic growth of any country, it has direct effect on international trade. The present study investigates the impact of macroeconomic factors (Current Account Deficit (CAD), Import, Export and Purchasing Power Parity (PPP)) on Exchange Rate Volatility (USD to INR) in India. To analyze how this variables have relationship in long and short run with exchange rate. Data from 1980 to 2016 has been considered for analysis by applying ADF test, Stationarity Testing, Stability Test, Johansen Co-integration test, Granger Causality test to know how the variables are affecting Exchange rate and ARIMA method of forecasting has been used for forecasting future movement of exchange rates for 20 years. The result shows us there exist long relationship and in short run it could be said that CAD and Import and PPP has positive impact on exchange rate and export has negative impact on exchange rate. CAD of the country is controlled automatically Exchange rate will be controlled and it will also reduce the impact on all other variables