The impact of oil shocks on exchange rates: A Markov-switching approach

Basher, Syed Abul; Haug, Alfred A.; Sadorsky, Perry

doi:10.1016/j.eneco.2015.12.004

Cited by 218 publications

(123 citation statements)

References 51 publications

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“…Instead, the effects are either linear or symmetrically nonlinear, if they are significant at all. This result is different from the results reported by Basher et al (2016) for oil-market specific demand shocks derived in Kilian's (2009) Table 3. Table 7.…”

Section: Discussioncontrasting

confidence: 56%

Exchange Rates of Oil Exporting Countries and Global Oil Price Shocks: A Nonlinear Smooth-Transition Approach

Haug

Basher

2017

SSRN Journal

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This paper considers logistic (asymmetric) and exponential (symmetric) smooth transition adjustments of real and nominal exchange rates for six major oil-exporting countries in response to different shocks affecting oil prices. Real exchange rate movements affect the terms of trade and hence may affect relative competitiveness. We detect no statistically significant non-linearities for the adjustment process of real exchange rate returns, be they asymmetric or symmetric, in response to oil supply shocks, idiosyncratic oil-market-specific shocks, and speculative (crude oil inventory) oil-market shocks. On the other hand, global aggregate demand shocks, which are shocks that do not directly originate in the oil market, have nonlinear asymmetric effects on real exchange rate returns for Canada, Mexico, Norway and Russia, and linear effects for the UK. These qualitative results mostly hold for nominal exchange rate returns as well. Exceptions are that linear effects are found for aggregate demand shocks for Brazil and for idiosyncratic shocks for Norway, whereas the aggregate demand shocks for the UK have nonlinear and asymmetric effects instead of linear ones. JEL Classification: F31, Q43

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Section: Discussioncontrasting

confidence: 56%

Exchange Rates of Oil Exporting Countries and Global Oil Price Shocks: A Nonlinear Smooth-Transition Approach

Haug

Basher

2017

SSRN Journal

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“…This “BDS test is based on the concept of a correlation integral. A correlation integral is a measure of the frequency with which temporal patterns are repeated in the data” Basher et al (, pp. 15).…”

Section: Data and Preliminary Analysismentioning

confidence: 99%

The impacts of global economic policy uncertainty on stock market returns in regime switching environment: Evidence from sectoral perspectives

Hoque

Zaidi

2018

Int. J Fin Econ

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This study contributes in building emerging literature by investigating the impacts of global economic policy uncertainty on Malaysian sectoral stock performance. This study models sectoral stock returns as time‐varying transition probability Markovian processes and employs two‐stage Markov‐switching model for findings impacts of global economic policy uncertainty on sectoral stock returns in regime switching environment. The empirical results reveal that linear framework unable to detect the effects global economic policy uncertainty, and the Markov‐switching model exhibits significant effects of global economic policy uncertainty on all sectoral stock returns excluding technology sector in Malaysia stock market. The findings also expose that the effects of global economic policy uncertainty vary across regime states, sectors, and nature of effects, where the negative effects of global economic policy uncertainty dominate over positive effects. The global economic policy uncertainty exhibits greater impacts on stock returns in high‐volatility regime. Thus, the findings confirm the existence of asymmetric, nonlinear, nonmonotonic, and state‐dependent relationship between global economic policy uncertainty and sectoral stock returns in Malaysia. Therefore, the overall empirical findings can be applied in asset pricing and investment decision‐making purposes. The findings also suggest that global economic policy uncertainty can be a systemic risk factor and predictor of stock market returns.

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“…Basher et al . () noted that oil supply shock effect on exchange rate is limited, while for both oil‐exporting and oil‐importing countries, oil demand shocks increase exchange rate appreciations. Fowowe () submitted for the economy of South Africa that periods oil price increases, exchange rate value of the country depreciates.…”

Section: Literature Reviewmentioning

confidence: 99%

Oil price, trade openness, current account balances and the official exchange rate in Nigeria

et al. 2019

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Since a larger percentage of government revenue are generated from crude oil trade, the fluctuations in the price of oil have always been influencing the budget financing in Nigeria. Also, investment decisions and trade cost are been influenced by the status of the oil price. The study investigates the relationship between oil price, trade openness, current account balances and official exchange rate in Nigeria using secondary data from 1980 through 2016. The non‐linear auto‐regressive distributed lag (NARDL) was used to analyse the short‐run and long‐run link between the variables. From the findings, it was established that in the short run and long run, trade openness negatively impacts on the official exchange rate of naira to dollar in Nigeria. The consumer price index positively and significantly influences exchange rate value in Nigeria in the short run and long run. Positive changes in oil price impacted negatively on official exchange rate in the short run, but in the long run had a positive impact. Negative changes in the price of oil have a positive insignificant and negative significant impact on official exchange rate in the short run and long run, respectively. The error correction result verified that the variables (trade openness, current account, oil price and consumer price index) correct 91 per cent deviations of exchange rate from short‐run equilibrium back to equilibrium in the long run. The study concludes that trade policy in Nigeria is not in favourable direction of official exchange rate in Nigeria. Also, positive changes in oil price and current account balances are strong determinants of the Nigerian official exchange rate of naira to dollar in the long run. Therefore, it is recommended that trade policies should be reviewed in Nigeria towards enhancing other sectors that would add more value to naira.

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The impact of oil shocks on exchange rates: A Markov-switching approach

Cited by 218 publications

References 51 publications

Exchange Rates of Oil Exporting Countries and Global Oil Price Shocks: A Nonlinear Smooth-Transition Approach

Exchange Rates of Oil Exporting Countries and Global Oil Price Shocks: A Nonlinear Smooth-Transition Approach

The impacts of global economic policy uncertainty on stock market returns in regime switching environment: Evidence from sectoral perspectives

Oil price, trade openness, current account balances and the official exchange rate in Nigeria

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