Online published on 23 February, 2017.
In present paper an attempt has been made to find out the business cycles, its characteristics and the lead-lag relationship between exchange rate and business cycles in the post-reform period in India. GDP has been taken as a reference series to represent overall cyclical fluctuations in the Indian economy. The series of real effective exchange rate, nominal effective exchange rate and exchange rate between dollar and rupee has been taken to represent the exchange rate indicator. The Bray-Boschan algorithm modified by Harding and Pagan for quarterly series has been used for the analysis of business cycles. To examine the lead-lag relationship between business cycles and exchange rate cross correlation and Granger causality test has been used. The examination has revealed that: a) Indian economy has experienced four business cycles during 1996–2014, b) exchange rate is significant leading indicator and it leads the turning points of business cycles by three months, c) real and nominal exchange rates are pro-cyclical leading indicators and exchange rate between dollar and rupee is counter-cyclical leading indicator.
