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Movements of oil prices and exchange rates in China and India: New evidence from wavelet-based, non-linear, autoregressive distributed lag estimations

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  • Khraief, Naceur
  • Shahbaz, Muhammad
  • Kumar Mahalik, Mantu
  • Bhattacharya, Mita

Abstract

This paper contributes to the existing literature by investigating the impact of oil prices on real exchange rates in China and India. We employ the non-linear, autoregressive-distributed lag model advanced by Shin et al. (2014), which allows both short-run and long-run asymmetry pass-through to a variable of interest. Oil prices and exchange rates are frequently found to be noisy. In order to detect the accurate relationship between oil prices and exchange rates, the maximum overlap, discrete-wavelet transformation is used to remove noise from the original series. The dynamic relationship between the original and de-noised series is compared. Our empirical findings suggest only long-run asymmetric effects of oil prices on exchange rates for both countries; however, after time-series noise removal, the asymmetric long-run effect becomes symmetric for India. Policy implications also are included.

Suggested Citation

  • Khraief, Naceur & Shahbaz, Muhammad & Kumar Mahalik, Mantu & Bhattacharya, Mita, 2020. "Movements of oil prices and exchange rates in China and India: New evidence from wavelet-based, non-linear, autoregressive distributed lag estimations," MPRA Paper 103526, University Library of Munich, Germany, revised 13 Oct 2020.
    • Handle: RePEc:pra:mprapa:103526
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    Keywords

    Oil price shocks; asymmetric effects; exchange rates; India; China; NARDL;
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