EXAMINING COINTEGRATION AND CAUSALITY OF EXCHANGE RATES: AN EVIDENCE FROM BRICS COUNTRIES

Abstract

The purpose of this paper is to investigate a form of the linkage between exchange rates of BRICS countries, based on daily exchange rates quoted in USD over a 10-year period. i.e. 01-01-2009 to 31-12-2018, (BRL / USD, RUB / USD, INR/USD, CNY/USD and ZAR / USD). retrieved from BIS (Bank for International Settlements). To investigate this, the econometric technique such as, Johansen cointegration test, Vector Error Correction Model (VECM) are used. The results of the Johansen cointegration test show that this series is cointegrated. The Granger causality tests revealed that China does not help predict Brazil, India, or South Africa. Brazil does help predict South Africa. This shows that there is a long-term causal relationship between exchange rates in the BRICS countries and that the coefficient should have a negative sign, indicating the ability to return to equilibrium.