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Testing the Asymmetric Effects of Exchange Rate and Oil Price Pass-Through in BRICS Countries: Does the state of the economy matter?

Author

Listed:
  • Mehmet Balcilar

    (Department of Economics, Eastern Mediterranean University, North Cyprus)

  • David Roubaud

    (Montpellier Business School, Montpellier, France)

  • Ojonugwa Usman

    (Department of Economics, Eastern Mediterranean University, North Cyprus)

  • Mark E. Wohar

    (Department of Economics, University of Nebraska-Omaha, USA)

Abstract

This paper investigates not only the question of whether there is exchange rate and oil price pass-through (EROPPT) but also the extent to which the pass-through is asymmetric or state dependent in the BRICS countries. Using monthly data and the nonlinear Vector Smooth Transition Autoregressive (VSTAR) model, we find evidence of period specific pass-through between the upper and lower regime periods, governed by the selected transition variables. We also find asymmetric pass-through in all the countries with strong evidence of higher pass-through when the size of the shocks to the transition variable moves the system above a threshold level. The result further divulges that output growth asymmetrically reacts to the shocks. The implication of these findings is that the pass-through is strongly affected by the state of the economy.

Suggested Citation

  • Mehmet Balcilar & David Roubaud & Ojonugwa Usman & Mark E. Wohar, 2019. "Testing the Asymmetric Effects of Exchange Rate and Oil Price Pass-Through in BRICS Countries: Does the state of the economy matter?," Working Papers 15-49, Eastern Mediterranean University, Department of Economics.
    • Handle: RePEc:emu:wpaper:15-49.pdf
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    More about this item

    Keywords

    Exchange rate pass-through; Oil price pass-through; Inflation; VSTAR;
    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
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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