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Oil prices and emerging market exchange rates

  • Hacihasanoglu, Erk
  • Turhan, Ibrahim M.
  • Soytas, Ugur

This paper investigates the role of oil prices in explaining the dynamics of selected emerging countries exchange rates. Using daily data series, the study concludes that a rise in oil price is leading to a significant appreciation in emerging economies currencies against the US dollar. In our study, we divide daily returns from 03/01/2003 to 02/06/2010 into 3 subsamples and test the role of oil price changes on exchange rate movements. We employ generalized impulse response functions to trace out the dynamic response of each exchange rate in three different time periods. Our findings suggest that oil price dynamics are changing significantly in the sample period and the relation between oil prices and exchange rates becomes more relevant after the 2008 financial crisis.

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File URL: https://mpra.ub.uni-muenchen.de/36477/1/MPRA_paper_36477.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36477.

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Date of creation: Jan 2012
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Publication status: Published in The Central Bank of the Republic of Turkey Working Papers Series 12.1(2012): pp. 1-26
Handle: RePEc:pra:mprapa:36477
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Web page: https://mpra.ub.uni-muenchen.de

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  1. Fuad Hasanov & Rabah Arezki, 2009. "Global Imbalances and Petrodollars," IMF Working Papers 09/89, International Monetary Fund.
  2. Basher, Syed Abul & Haug, Alfred A. & Sadorsky, Perry, 2011. "Oil prices, exchange rates and emerging stock markets," MPRA Paper 30140, University Library of Munich, Germany.
  3. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  4. Robert A. Amano & Simon van Norden, 1995. "Oil Prices and the Rise and Fall of the U.S. Real Exchange Rate," International Finance 9502001, EconWPA.
  5. J. Isaac Miller & Ronald Ratti, 2008. "Crude Oil and Stock Markets: Stability, Instability, and Bubbles," Working Papers 0810, Department of Economics, University of Missouri, revised 20 Jan 2009.
  6. Golub, Stephen S, 1983. "Oil Prices and Exchange Rates," Economic Journal, Royal Economic Society, vol. 93(371), pages 576-93, September.
  7. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  8. Lizardo, Radhamés A. & Mollick, André V., 2010. "Oil price fluctuations and U.S. dollar exchange rates," Energy Economics, Elsevier, vol. 32(2), pages 399-408, March.
  9. Johannes Wiegand, 2008. "Bank Recycling of Petro Dollars to Emerging Market Economies During the Current Oil Price Boom," IMF Working Papers 08/180, International Monetary Fund.
  10. Narayan, Paresh Kumar & Narayan, Seema & Prasad, Arti, 2008. "Understanding the oil price-exchange rate nexus for the Fiji islands," Energy Economics, Elsevier, vol. 30(5), pages 2686-2696, September.
  11. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
  12. Khan, Salman, 2010. "Crude Oil Price shocks to Emerging Markets: Evaluating the BRICs Case," MPRA Paper 22978, University Library of Munich, Germany.
  13. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  14. Chaudhuri, Kausik & Daniel, Betty C., 1998. "Long-run equilibrium real exchange rates and oil prices," Economics Letters, Elsevier, vol. 58(2), pages 231-238, February.
  15. Chen, Shiu-Sheng & Chen, Hung-Chyn, 2007. "Oil prices and real exchange rates," Energy Economics, Elsevier, vol. 29(3), pages 390-404, May.
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