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The Nexus Between Oil Price Shock and the Exchange Rate in Bangladesh

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  • Sakib Bin Amin

    (School of Business and Economics, North South University, Bashundhara, Dhaka-1229, Bangladesh.)

  • Noshin Nawal Audry

    (School of Business and Economics, North South University, Bashundhara, Dhaka-1229, Bangladesh.)

  • Ahmed Farah Ulfat

    (School of Business and Economics, North South University, Bashundhara, Dhaka-1229, Bangladesh.)

Abstract

We examine the nexus between oil price and exchange rate for Bangladesh economy by using annual data covering from 1980 to 2018. Given the stationarity properties, the Johansen cointegration and the ARDL bounds cointegration tests find a long-run cointegrating relationship between the variables. We find that oil price granger causes exchange rate in the long-run but not in the short-run. According to DOLS and DARDL model, an increase in oil price appreciates exchange rate by 0.40% and 0.30%. We argue that the central bank's proper monitoring mechanism is necessary to avoid oil price's adverse effects on the exchange rate.

Suggested Citation

  • Sakib Bin Amin & Noshin Nawal Audry & Ahmed Farah Ulfat, 2021. "The Nexus Between Oil Price Shock and the Exchange Rate in Bangladesh," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 427-435.
    • Handle: RePEc:eco:journ2:2021-02-51
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    3. Esmaeil Ebadi & Yousef Abdul Razaq, 2024. "Reinvestigating the Oil Dependency of the GCC Countries’ Stock Market: A Regime-Switching Cointegration Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 387-406, May.
    4. Hashmi, Shabir Mohsin & Chang, Bisharat Hussain & Huang, Liangfang & Uche, Emmanuel, 2022. "Revisiting the relationship between oil prices, exchange rate, and stock prices: An application of quantile ARDL model," Resources Policy, Elsevier, vol. 75(C).
    5. Nandi, Biplob Kumar & Kabir, Md Humayun & Nandi, Mohitosh Kumar, 2024. "Crude oil price hikes and exchange rate volatility: A lesson from the Bangladesh economy," Resources Policy, Elsevier, vol. 91(C).
    6. Jayson Beckman & Getachew Nigatu, 2021. "Do Political Factors Influence U.S. Crude Oil Imports?," International Journal of Energy Economics and Policy, Econjournals, vol. 11(4), pages 288-297.
    7. Caporale, Guglielmo Maria & Çatık, Abdurrahman Nazif & Huyuguzel Kısla, Gul Serife & Helmi, Mohamad Husam & Akdeniz, Coşkun, 2022. "Oil prices and sectoral stock returns in the BRICS-T countries: A time-varying approach," Resources Policy, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Oil Price Shock; Real Exchange Rate (RER); Cointegration; Causality; DOLS; DARDL; Bangladesh.;
    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
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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