Oil Prices Asymmetric and Exchange Rate Volatility: Case of Oil-Exporting Emerging Countries
This paper empirically examines the asymmetric impacts of oil prices on exchange rate volatility in oil-exporting developing countries. The study uses a nonlinear ARDL model to investigate the presence or otherwise of asymmetric relations between oil prices and exchange rate volatility from 1995 to 2018. The annual data was collected from WDI for 25 developing oil-exporting countries. Empirical evidence suggests the presence of asymmetric relationship in both short and long run. Price of oil has a long-run asymmetric impact on volatility of exchange rate, with the decrease in oil price, and is significantly related to exchange rate volatility, while the increase in oil price is not. The short-run asymmetric relationship also shows that only the decrease in price of oil has a substantial association with exchange rate volatility, while the relationship is insignificant in the case of oil price increase. The study concludes that oil price increase does not significantly affect exchange rate movement or volatility in the selected countries while oil price reduction has significant effects on exchange rate volatility in both short and long run. The study recommends that efforts must be made to prevent downward trend in oil price in order to avoid its concomitant negative effects on the economy via the exchange rate instability. (original abstract)
- Abed, R. E., Amor, T. H., Nouira, R., & Rault, C. (2016). Asymmetric effect and dynamic relationships between oil prices shocks and exchange rate volatility: Evidence from some selected MENA countries. Topics in Middle Eastern and African Economies, 8(2).
- Adeniyi, O., Omisakin, O., Yaqub, J., & Oyinlola, A. (2012). Oil price-exchange rate nexus in Nigeria: Further evidence from an oil exporting economy. International Journal of Humanities and Social Sciences, 2(8).
- Ahmed, R., Qaiser, I., & Yaseen, M. R. (2016). Nexus between exchange rate volatility and oil price fluctuations: Evidence from Pakistan. Pakistan journal of Commerce and Social Sciences 2016, 10(1), 122-148.
- Amano, R.A., & Van-Norden, S. (1998a). Oil Prices and the Rise and Fall of the US Real Exchange Rate. Journal of International Money and Finance, 17, 299-316.
- Amano, R.A., & Van-Norden, S. (1998b) "Exchange Rates and Oil Prices. Review of International Economics, 6(4): 683.
- Beckmann, J., Czudaj, R., & Arora, V. (2017). The Relationship between Oil Prices and Exchange Rates: Theory and Evidence. U.S. Department of Energy Working Papers, N0 DC20585.
- Bénassy-Quéré, A., Mignon, V., & Penot, A., (2007). China and the relationship between the oil price and the dollar. Energy Policy 35, 5795-5805.
- Buetzer, S., Habib, M. M. and Stracca, L. (2012). Global exchange rate configurations: Do oil shocks matter? European Central Bank Working Paper No. 1442.
- Buetzer, S., Habib, M. M., & Stracca, L. (2016). Global exchange rate configurations: Do oil shocksmatter? IMF Economic Review, 64(3), 443-470.
- Chen, S.S., & Chen, H.C. (2007). Oil prices and real exchange rates. Energy Economics 29, 390-404.
- Corden, W. M., & Neary, J. P. (1982). Booming sector and de-industrialisation in a small open economy. The economic journal, 92(368), 825-848.
- Coudert, V., Mignon, V., & Penot, A. (2008). Oil price and the dollar. Energy Studies Review, 15(2), 45-58.
- Habib, M. M. and Kalamova, M. M. (2007). Are there oil currencies? The real exchange rate of oil exporting countries. ECB Working Paper No. 839: http://ssrn.com/abstract=1032834.
- Ibrahim, M. H. (2015). Oil and food prices in Malaysia: A Nonlinear ARDL analysis. Agricultural and Food Economics 3:2. A Springer Open Journal.
- Jiranyakul, K. (2015). Oil price volatility and real effective exchange rate: The case of Thailand. International Journal of Energy Economics and Policy, 2015, 5(2), 574-579.
- Mendez-Carbajo, D. (2010). Energy dependence, oil prices, and exchange rates: The Dominican economy since 1990. Empirical Economics, 40(2), 509-520.
- Ogundipe, O. M., Ojeaga, P., & Ogundipe, A. A. (2014). Oil price and exchange rate volatility in Nigeria. IOSR Journal of Economics and Finance, 5(4), 01-09.
- Osuji, E. (2015). International oil prices and exchange rate in Nigeria: A causality analysis. International Journal of Academic Research in Economics and Management Sciences,4(3) 20-34.
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16: 289-326.
- Reboredo, J.C. (2012). Modelling oil price and exchange rate co-movements. Journal of Policy Modeling 34, 419- 440.
- Rickne, J. (2009). Oil prices and real exchange rate movements in oil-exporting countries: The role of institutions. IFN Working Paper No. 810, 2009.
- Turhan, I., Hacihasanoglu, E., & Soytas, U. (2013). Oil prices and emerging market exchange rates. Emerging Markets Finance and Trade, 49(S1), 21-36.