Relationship of exports with exchange rate and consumer price index

Abstract

Exchange rate is the vital macroeconomic variable and the backbone of any country. The variations in the exchange rate play an important role in determination of export quantities. The volatile exchange rate slows down the process of trade, destabilizes the capital movements and shatter’s the investor’s confidence to invest in the economy in the country with high exchange rate volatility which in turn slows down the process of growth. This research is based by collecting data for the period of 15 years such as from 1995 to 2009 and the primary objective was to examine the nature of the association of exchange rate and consumer price index (inflation) with exports. Analysis is based on the simple regression model and also “change in exports, exchange rate and CPI” was calculated and Augmented Dickey-Fuller (ADF) test was also applied and correlations between variables and the study considers the variables such as exchange rate, consumer price index (inflation) and exports. From the results obtained, it is concluded that exchange rate and inflation (CPI) have no significant relationship with exports. Though exports increase, it would have no effect on exchange rate and consumer price index (CPI).