ABSTRACT
The exchange rate, both nominal and real, plays a crucial role in many macro and micro models in both international economics and international finance. Examples may include incorporation of the exchange rate variable in explaining exports, imports, trade balance, foreign investments inflows and outflows, domestic inflation, and economic growth, among others. As such, it is of critical importance to understand the behavior, characteristics, and various relationships involving exchange rate movements. The purpose of this paper is to investigate the long-run relationship between the trade-weighted real effective exchange rate (henceforth REER) and aggregate exports for India utilizing the Johansen-Juselius multivariate co-integration analysis. Short-run dynamics will be examined with the error correction model estimates. Long annual time-series data were utilized in estimating the relationships.
