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Movements of oil prices and exchange rates in China and India: New evidence from wavelet-based, non-linear, autoregressive distributed lag estimations

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  • Khraief, Naceur
  • Shahbaz, Muhammad
  • Mahalik, Mantu Kumar
  • Bhattacharya, Mita

Abstract

This paper contributes to the existing literature by investigating the impact of oil prices on real exchange rates in China and India. We employ the non-linear, autoregressive-distributed lag model advanced by Shin et al. (2014), which allows both short-run and long-run asymmetry pass-through to a variable of interest. Oil prices and exchange rates are frequently found to be noisy. In order to detect the accurate relationship between oil prices and exchange rates, the maximum overlap, discrete-wavelet transformation is used to remove noise from the original series. The dynamic relationship between the original and de-noised series is compared. Our empirical findings suggest only long-run asymmetric effects of oil prices on exchange rates for both countries; however, after time-series noise removal, the asymmetric long-run effect becomes symmetric for India. Policy implications also are included.

Suggested Citation

  • Khraief, Naceur & Shahbaz, Muhammad & Mahalik, Mantu Kumar & Bhattacharya, Mita, 2021. "Movements of oil prices and exchange rates in China and India: New evidence from wavelet-based, non-linear, autoregressive distributed lag estimations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 563(C).
    • Handle: RePEc:eee:phsmap:v:563:y:2021:i:c:s037843712030755x
    DOI: 10.1016/j.physa.2020.125423
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    Keywords

    Oil price shocks; Asymmetric effects; Exchange rates; India; China; NARDL;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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