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Nonlinear and Asymmetric Impact of Oil Prices on Exchange Rates: Evidence from South Asia

Author

Listed:
  • Gao Wenxin

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, P. R. China)

  • Wen Jun

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, P. R. China)

  • Zakaria Muhammad

    (Department of Economics, COMSATS University Islamabad, Islamabad, Pakistan)

  • Mahmood Hamid

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, P. R. China)

Abstract

The study analyses the asymmetric and nonlinear influence of oil price on exchange rates of South Asian countries in time–frequency framework using wavelet technique. For empirical analysis, monthly data are examined from July 1983 to June 2018. Wavelet coherence results show that the variables are in phase, i.e., oil prices and exchange rates are positively correlated. It suggests that oil price influences exchange rates positively. The study also investigates the causal association between oil price and exchange rates using a nonlinear causality test. The results of nonlinear causality show that there is bidirectional causality between oil price and exchange in Bangladesh and India and unidirectional causality from oil price to exchange rate in Pakistan and Sri Lanka. The findings provide some important recommendations to investors and policy makers.

Suggested Citation

  • Gao Wenxin & Wen Jun & Zakaria Muhammad & Mahmood Hamid, 2022. "Nonlinear and Asymmetric Impact of Oil Prices on Exchange Rates: Evidence from South Asia," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 243-256, January.
    • Handle: RePEc:bpj:econoa:v:16:y:2022:i:1:p:243-256:n:15
    DOI: 10.1515/econ-2022-0031
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    More about this item

    Keywords

    oil price; exchange rates; wavelet; causality; South Asia;
    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
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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