A study of the interactive relationship between oil price and exchange rate: A copula approach and a DCC-MGARCH model

Brayek, Angham Ben; Sebai, Saber; Naoui, Kamel

doi:10.1016/j.jeca.2015.09.002

Cited by 30 publications

(24 citation statements)

References 29 publications

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“…All data were extracted from the Datastream database. The starting time of our sample period is also consistent with the current literature, for example, Aloui et al (2013), Brayek et al (2015), Reboredo (2012), Turhan et al (2014) and Wen et al (2018), and thus their oil‐exchange dependence results are comparable in some degree.…”

Section: Empirical Results and Discussionsupporting

confidence: 92%

“…Aloui et al (2013), Brayek, Sebai, and Naoui (2015) and Reboredo (2012) employ data of major oil‐trading countries and mainly find weak dependence between crude oil price and exchange rates and no significant evidence for asymmetric dependence. More specifically, Aloui et al (2013) and Brayek et al (2015) adopt static copulas to measure the dependence. The study of Reboredo (2012) uses the time‐varying elliptical copula functions (normal and Student‐ t copulas) and two tail dependence (lower tail and upper tail dependence), but its empirical design does not allow for fully capturing various market extreme comovement existing between oil and exchange rate markets.…”

Section: Literature Reviewmentioning

confidence: 99%

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Dynamic dependence and extreme risk comovement: The case of oil prices and exchange rates

Bing-yue

Nguyen

et al. 2020

Int. J Fin Econ

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This article aims at investigating the dynamic dependence and extreme risk comovement of oil price and exchange rates in seven oil‐importing and seven oil‐exporting countries. For this purpose, we use six representative time‐varying copula models and four kinds of tail dependences to assess the downside and upside conditional value‐at‐risk measures (CoVaRs). Our findings indicate that the dependence of crude oil returns and exchange rates is negative for most pairs, that is, the rise (fall) in oil prices was accompanied by the appreciation (depreciation) of foreign currency against the US dollar. The oil price–exchange rate dependences in oil exporters is slightly larger than in oil importers, even though the dependence is weak in general. More interestingly, we find strong evidence of significant risk comovement between crude oil returns and exchange rates through the analysis of lower–upper and upper–lower tail dependence as well as downside and upside CoVaRs. This comovement particularly showed asymmetric effects. Finally, we sum up some implications for investors, policymakers and exchange rate regulators from a holistic perspective of empirical findings.

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Section: Empirical Results and Discussionsupporting

confidence: 92%

Section: Literature Reviewmentioning

confidence: 99%

Dynamic dependence and extreme risk comovement: The case of oil prices and exchange rates

Bing-yue

Nguyen

et al. 2020

Int. J Fin Econ

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“…From the methodology side, previous studies dealing with the oil price-exchange rate nexus employ a wide range of econometric models, such as cointegration and Granger causality (Chaudhuri and Daniel 1998;Brahmasrene et al 2014;Mensah et al 2017;Jung et al 2019), error-correction model (Amano and van Norden 1998a), GARCH-type models (Narayan et al 2008;Fowowe 2014;Brayek et al 2015), quantile regression model (Nusair and Olson 2019), VAR model (Pershin et al 2016a, b) and panel models (Chen and Chen 2007;Nikbakht 2010). Some recent research focuses on investigating the nonlinear relationship between oil prices and exchange rates in the oil-importing and oil-exporting countries using various copula-based model and CoVaR measures (Reboredo 2012;Wu et al 2012;Aloui and Aïssa 2016;Ji et al 2019;Tiwari et al 2019).…”

Section: Research Background and Related Studiesmentioning

confidence: 99%

Dynamic structural impacts of oil shocks on exchange rates: lessons to learn

Shahzad

Bouri

et al. 2020

Economic Structures

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Oil's importance as an energy resource and influence in the global economic system has steadily increased. 1 Especially, the increasing oil trade has placed pressure on the current payment balance and led to exchange rate fluctuations (Bal and Rath 2015). Because oil price is a widely verified source of shock for exchange rates (Ji et al. 2015; Basher et al. 2016), investigating the underlying forces and transmission mechanisms of oil shocks to exchange provides useful information to market investors and holds important implications for policy-makers and central banks. Investors can incorporate any evidence of impacts of oil shocks on exchange rates in their investment and asset allocations decisions. As for policy-makers and central banks, who are concerned about the stability of exchange rates, they can improve their understanding of the vulnerability of exchange rates to oil price shocks so more appropriate policies and regulations can be formulated. Within the related literature regarding the impact of oil prices on exchange rates, researchers apply various methodologies, such as cointegration and Granger causality (Huang and Tseng 2010), Markov-switching analysis (Beckmann and Czudaj 2013), vector autoregressive (VAR) models (

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“…Result of the study shows positive price shocks to have a depreciating effect on exchange rate while negative price shock was found to appreciate exchange rate. Brayek et al (2015) employed the DCC-MGARCH model to examine the relationship between oil price and exchange rate. Findings of the study show oil price and exchange rate to be independent in the pre-crises period, but however in the post-crises period a positive dependence was found pointing to the influence of oil price on exchange rate.…”

Section: Empirical Literaturementioning

confidence: 99%

Oil Price and Exchange Rate Nexus in Nigeria: Are there Asymmetries

Abubakar

2019

CBN-JAS

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This paper examines the dynamics in the relationship between oil price and exchange rate in Nigeria by utilizing monthly data spanning January 1986 to June 2018. It specifically determines asymmetries in the relationship between oil price and exchange rate and the effect of oil price shocks on exchange rate. Threshold Autoregressive (TAR), Momentum Threshold autoregressive (MTAR) and Structural Vector Autoregressive (SVAR) models were employed for the analysis. Findings of TAR and MTAR models confirm the absence of asymmetric cointegration, hence leading to the conclusion that in the case of Nigeria, there are no asymmetries in the relationship between oil price and exchange rate. Findings from the SVAR model show gradual appreciation (though with some time lag) of naira following positive shocks to oil price. The study recommends among others the need for diversification of foreign exchange earnings base of the economy, so as to minimise the effect of negative shocks to oil price.

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A study of the interactive relationship between oil price and exchange rate: A copula approach and a DCC-MGARCH model

Cited by 30 publications

References 29 publications

Dynamic dependence and extreme risk comovement: The case of oil prices and exchange rates

Dynamic dependence and extreme risk comovement: The case of oil prices and exchange rates

Dynamic structural impacts of oil shocks on exchange rates: lessons to learn

Oil Price and Exchange Rate Nexus in Nigeria: Are there Asymmetries

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