Factors affecting Exchange Rate and its Impact on Economy of India Maurya Sheetal Master of Philosophy Scholar, Department of Commerce, Delhi School of Economics, University of Delhi, Delhi, India, sheetal.maurya17@gmail.com Online published on 21 August, 2017. Abstract Present study investigates the impact of various economic variables on Rupee-USD exchange rate. The effect of exchange rate changes on GDP is also studied through a separate model. Results indicate that money supply, short run yield differentials, CAD, and inflation differential aren't statistically significant determinants of exchange rate. The R-square (goodness of fit) of the regression model comes out to 86.5%. Further, impact exchange rate on economic growth is examined using GDPmp as the parameter to judge the economic growth. Exchange rate increase does not cause a big increase in GDP this is because exchange rate has a positive impact on import and export both. The GDP will increase by a big amount only when the rupee depreciation will cause an increase in export and decrease in import. But since the import is found to have a positive correlation with exchange rate the net export value has decreased (but positive). Top Keywords Exchange Rate, Inflation differential, Interest rate differential, broad money supply, Foreign Exchange Reserve, Current account deficit, Gross fiscal deficit, GDP, import, export. Top |