Citation:

Hari V. G.. "Comparative Analysis of the Volatility of Indian Rupee Exchange Rates against Major Foreign Currencies: Evidence from ARCH and GARCH Models" International Research Journal of Economics and Management Studies, Vol. 5, No. 8, pp. 37-53, 2026. Crossref. https://doi.org/10.56472/25835238/IRJEMS-V5I8P104

Abstract:

This study examines and compares the conditional volatility of the Indian rupee against the US dollar, pound sterling, euro and Japanese yen using daily exchange rate data covering April 2010 to March 2026. After examining the time-series properties and stylised features of the return series, a range of ARCH and GARCH-family models is estimated under alternative innovation distributions. The analysis identifies the most appropriate volatility specification for each currency and compares their relative volatility and persistence. The findings indicate substantial differences in the volatility characteristics of the four exchange rates, with the Japanese yen exhibiting the highest unconditional volatility and the US dollar the lowest. Volatility is highly persistent across the currencies, although persistence varies across regimes and declines when the sample is divided into pre-pandemic, pandemic and post-pandemic periods, suggesting that structural changes can influence estimates of volatility persistence. Out-of-sample results further indicate that GARCH-based models provide useful improvements over a random-walk volatility benchmark, although their forecasting advantage over simple rolling measures is limited. The study provides comparative evidence on the dynamics and persistence of major foreign exchange risks faced by the Indian rupee.

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Keywords:

Emerging Market Currencies, Exchange Rate Volatility, GARCH, Indian Rupee, Volatility Persistence.