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Oil Price and Exchange Rate Behaviour of the BRICS for Over a Century

Author

Listed:
  • Afees A. Salisu

    (Centre for Econometric & Allied Research, University of Ibadan, Ibadan, Nigeria)

  • Juncal Cunado

    (Economics Department, University of Navarra, Spain)

  • Kazeem Isah

    (Centre for Econometric & Allied Research, University of Ibadan, Ibadan, Nigeria)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

Abstract

We attempt to predict the exchange rate returns of BRICS countries with the global oil price using large historical datasets for over a century extending from September 1859 to April 2020. We formulate a predictive model that accounts for the salient features of the predictor and the predicted series in line with the recent literature. We establish, with the aid of asymmetry, that oil price is a good predictor of exchange rate returns for all the net oil-importers (India, South Africa and China) and one of the two net oil-exporters (Russia). We also demonstrate with compelling in-sample and out-of-sample forecast results that accounting for the role of asymmetry is crucial for the oil-based model to beat the benchmark (historical average) model.

Suggested Citation

  • Afees A. Salisu & Juncal Cunado & Kazeem Isah & Rangan Gupta, 2020. "Oil Price and Exchange Rate Behaviour of the BRICS for Over a Century," Working Papers 202064, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202064
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    References listed on IDEAS

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    Cited by:

    1. Sheng, Xin & Gupta, Rangan & Salisu, Afees A. & Bouri, Elie, 2022. "OPEC News and Exchange Rate Forecasting Using Dynamic Bayesian Learning," Finance Research Letters, Elsevier, vol. 45(C).
    2. Afees A. Salisu & Juncal Cuñado & Kazeem Isah & Rangan Gupta, 2021. "Stock markets and exchange rate behavior of the BRICS," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(8), pages 1581-1595, December.
    3. Fan Zhang & Paresh Kumar Narayan & Neluka Devpura, 2021. "Has COVID-19 changed the stock return-oil price predictability pattern?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-10, December.
    4. Yin, Xiao-Cui & Li, Xin & Wang, Min-Hui & Qin, Meng & Shao, Xue-Feng, 2021. "Do economic policy uncertainty and its components predict China's housing returns?," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    5. Salisu, Afees A. & Olaniran, Abeeb & Tchankam, Jean Paul, 2022. "Oil tail risk and the tail risk of the US Dollar exchange rates," Energy Economics, Elsevier, vol. 109(C).
    6. Salisu, Afees & Salisu, Sulaiman & Salisu, Subair, 2023. "A news-based economic policy uncertainty index for Nigeria," MPRA Paper 119539, University Library of Munich, Germany, revised 13 Aug 2023.

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    More about this item

    Keywords

    Oil price; Exchange rate return; BRICS; Asymmetry; Predictability; Forecast evaluation;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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