Asymmetric Co-Integration Analysis of Exchange Rates and Crude Oil Prices: Evidence from India

Energy Economics, 2018

An Econometric Investigation of Long and Short Run Relationship among Global Crude Oil Price, Exchange Rate and Stock Price in India: An ARDL-UECM Approach., 2015

The present study aims to investigate the long and short run relationship between Global Crude Oil Price, Exchange Rate Volatility and Stock Price in India using ARDL-UECM approach. The study used monthly data from the period April 2000 to January 2015. The cointegration result reveals that crude oil price tends to have long run relationship with exchange rate and stock price and changes in the independent variables have significant impact on volatility of global crude oil prices. The long run estimates of ARDL Process indicate that impact of exchange rate volatility on crude oil is negative whereas the interaction between NSE Stock price and crude oil price is positive. The Short Run Dynamic coefficients associated with long run relationships reveals that the estimated error correction coefficient is negative which indicates that adjustment process from short run deviation is quite slow. The analysis would enhance the understanding of dynamic interaction between the global crude oil price, exchange rate and stock price. The empirical outcome is of wider interest and has large implications for market integration, policy makers and investors at large.

We estimated the relationship between the exchange rates and crude oil prices for the period of 1960 to 2013. Based on Engle-Granger we found that the variables are cointegrated means there exist long-run relationship. However, when we move on to TAR and MTAR models the findings are opposite as there is no element of cointegration and the speed of adjustment is symmetric. This shows that based on TAR and MTAR models the effects of exchange rates on crude oil prices is insignificant. The policy relevance is that South African authority need to monitor its exchange rates persistently related to other currencies more especially American dollar because it determined the crude oil prices that might have greater influences on other macroeconomic variables.

The objective of this paper is to examine the effects of oil price on exchange rate of Indian rupee against US dollar using time series data from 1972-73 to 2012-13. Multiple linear regression models are used to analyse the data. The model result suggests that the import of crude oil continues to rise up when the crude oil future price increases. The oil imports thus became a substantial source of demand for dollar in India's foreign exchange market. This strong demand contributes to strengthen the dollar against Indian rupee, among the other factors. This finding will contribute to Indian government in making policy to control the petrol price to avoid rupee depreciation against US dollar.

Research in International Business and Finance, 2017

This study examines the long-run dynamics between oil price and the bilateral US dollar exchange rates for a group of oil-dependent economies before and after the 2008-2009 Global Financial Crises. Exchange rates are for the euro, Indian rupee, Russian ruble, South African rand, Ghanaian cedi and the Nigerian naira. The dependence on crude oil of these economies is either because fiscal revenues are primarily reliant on oil export receipts or because industrial production is heavily dependent on petroleum. Empirical results show evidence of a long run equilibrium relationship between oil price and exchange rate, especially for currencies of the key oil-exporting countries. This relationship is more evident in the post crisis period, which is also the period when both exchange rate volatility and the inverse relationship between oil price and exchange rate experienced a significant increase.

Journal of emerging technologies and innovative research, 2018

2016

Crude oil price and US dollar value are the two critical economic variables influencing global economy. The purpose of this research is to study the sustained long-run relationship between these two variables. The fact that Crude oil price is determined in dollar and that oil price and dollar exchange rate, since 1970, underwent many changes at international markets raised this question that what is the relationship between these two variables. For this purpose, co-integration and causality tests were used for variables within 1990-2013. Research results show that there is a negative relationship between crude oil price and dollar value such that if the real price of crude oil increases up to 10%, dollar real value decreases to 1.7%. Causality direction is from oil price variable to US dollar price. In addition, estimating short-term error correction relationship for dollar exchange rate long-run equation, it is seen that if dollar real exchange rate deviates from its long-run trend...

Applied Econometrics and International …, 2008

This paper analyzes empirically whether the exchange rates and crude oil prices have explanatory power over Indian Stock market prices or not. The data used for this study are daily stock price indexes of BSE Sensex, Crude oil price and exchange rates for the period 2 nd January 1991 -12 th ,December 2007. Engel-Granger and cointegration tests, VECM and variance Decomposition tests were used in the study to explain the long run relations among variables questioned. Obtained results illustrate that stock price indexes are cointegrated with crude oil prices and exchange rates by providing direct long run equilibrium relation. Our results also indicate that the stock market prices are influenced by oil and exchange rate at lag -50 where as stock market prices are influenced by exchange rate only at lag-25. The results also indicates that the average real returns in the era of rupee depreciation are lesser than that of appreciation period.

2023

The economies of developing countries are more affected by high inflation rate which disrupts the consumption, investment and production activities as well as their economic growth and in turn brings macroeconomic instability. This study investigates the impact of oil price, exchange rate, gross fiscal deficit and financial development on the inflation rate in India. The multiple regression model has been employed to analyse the secondary data (1980 to 2020) collected from the web portal of the World Bank and Reserve Bank of India. The result shows that the impact of the exchange rate fluctuation is considerably more realised in this study when compared to other independent factors. So import reduction and maintaining adequate foreign exchange reserves can bring stability in the exchange rate in India. Moreover, policymakers may concentrate on minimising crude oil consumption and promoting the use of renewable energy to protect the domestic economy from changes in oil price fluctuation in the global market. In addition to these suitable monetary as well as fiscal policies are inevitable to reduce the inflationary pressure in Indian economy.

International Journal of 360 Management Review, 2019

Using a multivariate ARCH (Autoregressive Conditional Heteroskedasticity) and GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model, this paper is an attempt to study the comparative performance of Indian exchange rates fluctuations during volatility spillover from Brent crude prices and Indian terms of trade (Exports/Imports) during pre and post-Modi Government period. This study was divided into two periods (i) UPA-2 (2009M05 to 2014M05) (ii) Modi Government (2014M06 to 2019M05) to evaluate the performance of exchange rates during the periods. The findings of the study suggested that UPA-2 period was exposed to GARCH effect due to volatility from crude oil price fluctuations. On the contrary, Modi government period was exposed to volatility from Indian terms of trade only. Further, the study has given confirmatory evidence of ARCH and GARCH volatility during the UPA-2 period but Modi Government period exposed to GARCH effect due to fluctuation in ratio to exports to imports only.

Past research has mainly applied linear cointegration analysis to study the relationship of crude oil prices with the prices of other commodities. However, recent methodological innovations in cointegration analysis allow for a more thorough analysis of the co-movement of commodity prices and detect asymmetric and thresholds co-movements. Following Enders and Siklos (2001) and Hansen and Seo (2002), we apply threshold cointegration analysis, detecting co-movements that earlier studies based on linear cointegration analysis could not detect. We find that adjustments to positive and negative deviations from the long-run equilibrium are asymmetric for copper, food and agricultural raw materials in the short-run. Moreover, the adjustments for aluminum and nickel are symmetric. The price Granger causalities behave as expected for metals and agricultural raw material prices. Food prices, however, behave differently. In sum, the results of this paper underscore the importance of consistent...

SSRN Electronic Journal, 2005

This study assesses the oil prices-macaroeconomy relationship by means of multivariate VAR using both linear and non-linear specifications. Scaled oil prices model outperforms other models used in the study. It studies the impacts of oil price shocks on the growth of industrial production for Indian economy over the period 1975Q1-2004Q3. It is found that oil prices Granger cause macroeconomic activities. Evidence of asymmetric impact of oil price shocks on industrial growth is found. Oil price shocks negatively affect the growth of industrial production and we find that an hundred percent increase in oil prices lowers the growth of industrial production by one percent. Moreover, the variance decomposition analysis while putting the study in perspective finds that the oil price shocks combined with the monetary shocks are the largest source of variation in industrial production growth other than the variable itself.

The Journal of Economic Asymmetries , 2023

This article investigates whether oil price shocks have an asymmetric impact on certain key macroeconomic variables, viz., industrial output, inflation, exchange rates, and stock returns in India. The empirical evaluation of this issue involves using recently developed slope and impulse response-based symmetry tests advocated by Kilian and Vigfusson (2011a). The evidence based on Wald test indicate that there is asymmetry and nonlinearity in the response of macroeconomic variables to oil price shocks. The evidence obtained from impulse responses suggests that most of the macroeconomic variables asymmetrically respond to small and large oil price shocks over different forecast horizons. However, electricity production, nominal effective exchange rate, stock return and inflation measure based on wholesale price index respond symmetrically to oil price shocks using the slope test. These findings are found to be robust to alternative lag structures utilized in the estimation.

Energy Economics, 2008

The aim of this paper is to study the long-term relationship between oil prices and economic activity, proxied by GDP. To account for asymmetries existing in the links between the two variables, we propose an approach based on asymmetric cointegration. Our empirical analysis concerns the U.S. economy, but also the G7, Europe and Euro area economies. Results indicate that, while standard cointegration is rejected, there is evidence for asymmetric cointegration between oil prices and GDP.