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‘Nonlinear causality between crude oil price and exchange rate: A comparative study of China and India’ — A failed replication (negative Type 1 and Type 2)

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  • De Vita, Glauco
  • Trachanas, Emmanouil

Abstract

Evidence published in this journal by Bal and Rath (2015) purports a bidirectional nonlinear causality between oil price and India's exchange rate and, for China, unidirectional nonlinear causality running from exchange rate to oil price. Their entire testing protocol and ensuing results rest upon claims that all the variables contain a unit root. We raise several critical issues and revisit the order of integration of the series as well as their cointegration and Granger causality properties through a ‘pure replication’ and a ‘reanalysis’. Contrary to Bal and Rath (2015), when we repeat their estimated model with their specification of the Ng and Perron (2001) unit root test on their data, we find that their oil price series (ROL) is level stationary (negative replication Type 1), a result which makes all their subsequent results biased and misleading. Our reanalysis confirms that ROL is I(0), linearly as well as nonlinearly. We also find that the basic bivariate model proposed by Bal and Rath (2015) fails to produce statistically robust and stable cointegrating patterns. Nonlinear causality tests confirm the absence of any nonlinear causality for both countries (negative replication Type 2).

Suggested Citation

  • De Vita, Glauco & Trachanas, Emmanouil, 2016. "‘Nonlinear causality between crude oil price and exchange rate: A comparative study of China and India’ — A failed replication (negative Type 1 and Type 2)," Energy Economics, Elsevier, vol. 56(C), pages 150-160.
  • Handle: RePEc:eee:eneeco:v:56:y:2016:i:c:p:150-160
    DOI: 10.1016/j.eneco.2016.03.014
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    Cited by:

    1. repec:eee:jimfin:v:83:y:2018:i:c:p:55-74 is not listed on IDEAS
    2. Martin Baumgaertner & Jens Klose, 2018. "Forecasting Exchange Rates with Commodity Prices - A Global Country Analysis," MAGKS Papers on Economics 201812, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. repec:eee:eneeco:v:69:y:2018:i:c:p:19-32 is not listed on IDEAS

    More about this item

    Keywords

    Replication; Causality; Oil price; Exchange rate; Unit root; Cointegration;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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    1. ‘Nonlinear causality between crude oil price and exchange rate: A comparative study of China and India’ — A failed replication (negative Type 1 and Type 2) (Energy Economics 2016) in ReplicationWiki

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