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ASEAN-5 forex rates and crude oil: Markov regime-switching analysis

Author

Listed:
  • Mukhriz Izraf Azman Aziz
  • Zaghum Umar
  • Mariya Gubareva
  • Tatiana Sokolova
  • Xuan Vinh Vo

Abstract

We investigate the influence of moves in oil prices on exchange rates of Indonesia, Malaysia, the Philippines, Singapore and Thailand (the ASEAN-5 countries). We disentangle oil shocks, representing them by three components: demand shock, supply shock and risk shock, and examine their impact on the ASEAN-5 exchange rates by employing high-/low-volatility Markov regime-switching regressions for the period 2006 to Beckmann, Czudaj, and Arora 2020. We find that demand shocks make forex rates increase for net oil-producing as well as net oil-consuming economies. The impacts of supply shocks on forex rates for most economies are rather low. The risk shocks lead to depreciating effects on the ASEAN-5 currencies, supporting the notion that the open-oriented nature of ASEAN-5 economies makes them susceptible to constant fluctuations in the global oil market. We study interactions between the price of crude oil and exchange rates of the ASEAN-5 economies.We decompose changes in oil price into demand-, supply- and risk-driven components.We show non-linear interrelations between movements in forex rates and price of oil.Demand shocks appreciate forex rates for both net oil-producer and net oil-consumer economies.Supply-driven moves in oil prices exercise a marginal influence on forex rates for most countries.Risk shocks have depreciating effects on the ASEAN-5 exchange rates.

Suggested Citation

  • Mukhriz Izraf Azman Aziz & Zaghum Umar & Mariya Gubareva & Tatiana Sokolova & Xuan Vinh Vo, 2022. "ASEAN-5 forex rates and crude oil: Markov regime-switching analysis," Applied Economics, Taylor & Francis Journals, vol. 54(54), pages 6234-6253, November.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:54:p:6234-6253
    DOI: 10.1080/00036846.2022.2083066
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    Citations

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    Cited by:

    1. Michael Frömmel & Darko B. Vukovic & Jinyuan Wu, 2022. "The Dollar Exchange Rate, Adjustment to the Purchasing Power Parity, and the Interest Rate Differential," Mathematics, MDPI, vol. 10(23), pages 1-17, November.
    2. Zhu, Huiming & Li, Shuang & Huang, Zishan, 2023. "Frequency domain quantile dependence and connectedness between crude oil and exchange rates: Evidence from oil-importing and exporting countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 1-30.
    3. Bossman, Ahmed & Gubareva, Mariya & Teplova, Tamara, 2023. "Asymmetric effects of geopolitical risk on major currencies: Russia-Ukraine tensions," Finance Research Letters, Elsevier, vol. 51(C).
    4. Umar, Zaghum & Abrar, Afsheen & Hadhri, Sinda & Sokolova, Tatiana, 2023. "The connectedness of oil shocks, green bonds, sukuks and conventional bonds," Energy Economics, Elsevier, vol. 119(C).
    5. Chortane, Sana Gaied & Pandey, Dharen Kumar, 2022. "Does the Russia-Ukraine war lead to currency asymmetries? A US dollar tale," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).

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