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Oil prices and emerging market exchange rates

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  • Hacihasanoglu, Erk
  • Turhan, Ibrahim M.
  • Soytas, Ugur

Abstract

This paper investigates the role of oil prices in explaining the dynamics of selected emerging countries exchange rates. Using daily data series, the study concludes that a rise in oil price is leading to a significant appreciation in emerging economies currencies against the US dollar. In our study, we divide daily returns from 03/01/2003 to 02/06/2010 into 3 subsamples and test the role of oil price changes on exchange rate movements. We employ generalized impulse response functions to trace out the dynamic response of each exchange rate in three different time periods. Our findings suggest that oil price dynamics are changing significantly in the sample period and the relation between oil prices and exchange rates becomes more relevant after the 2008 financial crisis.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36477.

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Date of creation: Jan 2012
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Publication status: Published in The Central Bank of the Republic of Turkey Working Papers Series 12.1(2012): pp. 1-26
Handle: RePEc:pra:mprapa:36477

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Keywords: oil prices; emerging market exchange rates; international financial markets; financial crisis;

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  1. Johannes Wiegand, 2008. "Bank Recycling of Petro Dollars to Emerging Market Economies During the Current Oil Price Boom," IMF Working Papers, International Monetary Fund 08/180, International Monetary Fund.
  2. Basher, Syed Abul & Haug, Alfred A. & Sadorsky, Perry, 2012. "Oil prices, exchange rates and emerging stock markets," Energy Economics, Elsevier, Elsevier, vol. 34(1), pages 227-240.
  3. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 813-36, July.
  4. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9710, Faculty of Economics, University of Cambridge.
  5. Lizardo, Radhamés A. & Mollick, André V., 2010. "Oil price fluctuations and U.S. dollar exchange rates," Energy Economics, Elsevier, Elsevier, vol. 32(2), pages 399-408, March.
  6. Golub, Stephen S, 1983. "Oil Prices and Exchange Rates," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 93(371), pages 576-93, September.
  7. J. Isaac Miller & Ronald Ratti, 2008. "Crude Oil and Stock Markets: Stability, Instability, and Bubbles," Working Papers, Department of Economics, University of Missouri 0810, Department of Economics, University of Missouri, revised 20 Jan 2009.
  8. Chen, Shiu-Sheng & Chen, Hung-Chyn, 2007. "Oil prices and real exchange rates," Energy Economics, Elsevier, Elsevier, vol. 29(3), pages 390-404, May.
  9. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1519-1554, November.
  10. Chaudhuri, Kausik & Daniel, Betty C., 1998. "Long-run equilibrium real exchange rates and oil prices," Economics Letters, Elsevier, Elsevier, vol. 58(2), pages 231-238, February.
  11. Robert A. Amano & Simon van Norden, 1995. "Oil Prices and the Rise and Fall of the U.S. Real Exchange Rate," International Finance, EconWPA 9502001, EconWPA.
  12. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, Elsevier, vol. 74(1), pages 119-147, September.
  13. Fuad Hasanov & Rabah Arezki, 2009. "Global Imbalances and Petrodollars," IMF Working Papers, International Monetary Fund 09/89, International Monetary Fund.
  14. Narayan, Paresh Kumar & Narayan, Seema & Prasad, Arti, 2008. "Understanding the oil price-exchange rate nexus for the Fiji islands," Energy Economics, Elsevier, Elsevier, vol. 30(5), pages 2686-2696, September.
  15. Khan, Salman, 2010. "Crude Oil Price shocks to Emerging Markets: Evaluating the BRICs Case," MPRA Paper 22978, University Library of Munich, Germany.
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Cited by:
  1. Jiranyakul, Komain, 2014. "Oil price volatility and real effective exchange rate: the case of Thailand," MPRA Paper 57196, University Library of Munich, Germany.
  2. Gazi Salah Uddin & Aviral Kumar Tiwari & Mohamed Arouri & Frederic Teulon, 2014. "On the relationship between oil price and exchange rates: A wavelet analysis," Working Papers, Department of Research, Ipag Business School 2014-456, Department of Research, Ipag Business School.
  3. Tiwari, Aviral Kumar & Mutascu, Mihai Ioan & Albulescu, Claudiu Tiberiu, 2013. "The influence of the international oil prices on the real effective exchange rate in Romania in a wavelet transform framework," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 714-733.
  4. Shahbaz, Muhammad & Tiwari, Aviral Kumar & Tahir, Mohammad Iqbal, 2013. "Analyzing Time-Frequency Relationship between Oil Price and Exchange Rate in Pakistan through Wavelets," MPRA Paper 48086, University Library of Munich, Germany, revised 05 Jul 2013.

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