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When the Oil Price Spillover: Examining the Volatility Spillover Effect between Crude Oil Price and Rupee-Dollar Exchange Rates

Author

Listed:
  • Akhil Sharma

    (School of Commerce and Management Studies, Central University of Himachal Pradesh, Kangra, India)

  • Abdul Rishad

    (ICFAI Business School, Hyderabad, India)

  • Vikas Kumar Tyagi

    (Panipat Institute of Engineering and Technology, Panipat, India)

  • Jagdeep Singla

    (Bhagat Phool Singh Mahila Vishwavidyalaya, Sonipat, India)

Abstract

This study investigates the long-standing debate between crude oil price variations and currency exchange rate volatility using daily data from July 1, 2009, to January 31, 2024. The GARCH family models were utilized to assess the symmetrical and asymmetrical impacts of oil price changes on exchange rate movements. The results indicate that the Indian Rupee (INR) appears to depreciate in value relative to the US dollar (USD) as oil prices rise. Furthermore, the Engle and Ng (1993) test indicated a significant asymmetric effect in oil-exchange nexus, validating the application of asymmetric GARCH models. The study unveils several insights into the dynamic between oil price shocks and exchange rate volatility. It shows that the effects of positive and negative oil price alterations on exchange rates are dissimilar, displaying different levels of impact based on whether the oil prices are escalating or declining. The study also reveals that oil price shocks have enduring effects on exchange rate movements, not just transient ones. Given these findings, policymakers in India should adopt a proactive approach to manage exchange rate fluctuations by implementing strategies that mitigate the adverse effects of oil price shocks.

Suggested Citation

  • Akhil Sharma & Abdul Rishad & Vikas Kumar Tyagi & Jagdeep Singla, 2025. "When the Oil Price Spillover: Examining the Volatility Spillover Effect between Crude Oil Price and Rupee-Dollar Exchange Rates," Economic Research Guardian, Mutascu Publishing, vol. 15(1), pages 27-46, June.
    • Handle: RePEc:wei:journl:v:15:y:2025:i:1:p:27-46
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    References listed on IDEAS

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    1. Ahmad, A.H. & Moran Hernandez, Ricardo, 2013. "Asymmetric adjustment between oil prices and exchange rates: Empirical evidence from major oil producers and consumers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 306-317.
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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