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Oil Price and Exchange Rates: A Wavelet Analysis for Organisation of Oil Exporting Countries Members

Author

Listed:
  • Basheer H. M. Altarturi

    (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia,)

  • Ahmad Alrazni Alshammri

    (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia,)

  • Tuan Muhd Tau ik Tuan Hussin

    (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia)

  • Buerhan Saiti

    (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia.)

Abstract

This paper studies the relationship between oil price and the exchange rates of Organization of Oil Exporting Countries (OPEC) members from February 1999 to March 2016. The wavelet method is applied to combine information from both time and frequency domains, which does not require stationary and decomposition of original time series data. The study found that the strength of the relationship between oil price and exchange rate divides into three main categories, namely oil price leads exchange rate, exchange rate leads oil prices, and the relationship keeps changing. Countries which currencies pegged to US Dollar are lagging against oil price changes, countries with floating exchange rates and countries with an undisclosed weighted basket of international currencies leads the changes in oil price, and countries which their currencies pegged to special drawing right experience changing relationships. This finding suggests that the central banks of OPEC member countries should give importance to shocks on oil prices, while formulating their own exchange rate policy.

Suggested Citation

  • Basheer H. M. Altarturi & Ahmad Alrazni Alshammri & Tuan Muhd Tau ik Tuan Hussin & Buerhan Saiti, 2016. "Oil Price and Exchange Rates: A Wavelet Analysis for Organisation of Oil Exporting Countries Members," International Journal of Energy Economics and Policy, Econjournals, vol. 6(3), pages 421-430.
    • Handle: RePEc:eco:journ2:2016-03-7
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    References listed on IDEAS

    as
    1. Beckmann, Joscha & Czudaj, Robert, 2013. "Is there a homogeneous causality pattern between oil prices and currencies of oil importers and exporters?," Energy Economics, Elsevier, vol. 40(C), pages 665-678.
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    Cited by:

    1. Mohamed Albaity & Hasan Mustafa, 2018. "International and Macroeconomic Determinants of Oil Price: Evidence from Gulf Cooperation Council Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 8(1), pages 69-81.
    2. Ahmad Alrazni Alshammari, Basheer Altarturi, Buerhan Saiti, Latifah Munassar, 2020. "The impact of exchange rate, oil price and gold price on the Kuwaiti stock market: a wavelet analysis," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 17(1), pages 31-54, June.
    3. Mpoha, Salifya & Bonga-Bonga, Lumengo, 2021. "Spillover effects from China and the US to global emerging markets: a dynamic analysis," MPRA Paper 109349, University Library of Munich, Germany.
    4. Nisful Laila & Aam S. Rusydiana & Muhamad Iqbal Irfany & Imron HR & Popon Srisusilawati & Muhamad Taqi, 2021. "Energy Economics in Islamic Countries: A Bibliometric Review," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 88-95.
    5. Razek, Noha H.A. & McQuinn, Brian, 2021. "Saudi Arabia's currency misalignment and international competitiveness, accounting for geopolitical risks and the super-contango oil market," Resources Policy, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Wavelet Coherence; Oil Price; Exchange Rate; Organization of Oil Exporting Countries;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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