The aim of this paper is to investigate the exchange rate consequences of oil-price fluctuations and to test for the dynamics of oil price volatility by examining interactions between oil market and exchange rate in selected MENA countries (Egypt, Jordan, Morocco, Qatar, Saudi Arabia, Tunisia, and UAE). Using daily time series data covering the period from January 1, 2001 to December 29, 2017, we implement the test for asymmetric non-causality of Hatemi-J (2012), the asymmetric generalized impulse response functions of Hatemi-J (2014), and the test for noncausality-in-variance of Hafner and Herwartz (2006) to examine the presence of volatility spillover between oil prices and exchange rates return series. The econometric investigation reveals in particular that i) when prices are rising in Tunisia and Saudi Arabia, oil prices cause change in exchange rates, and ii) there is significant evidence of volatility spillovers from oil markets to exchange rate markets in the selected MENA countries. These findings have important implications both from the investor's and from the policy-maker's perspective.
Real exchange rate fluctuations take a central place in the discussions over the choices of economic policies in developing economies. It is essentially the dependence with respect to imports and the specialization in exports that account for real exchange rate fluctuations on the economic performances of developing countries. The accessibility to the world financial market also plays an important role in helping to smooth out consumption in financing trade balance disequilibrium. Identifying the sources of real exchange rate fluctuations enables one to measure, on the one hand, the consequences of economic policies implemented by the government on the real exchange rates, and on the other, the room policy makers have at their disposal to deal with possible real exchange rate movements harmful to economic activity. In this perspective, we address in the paper the main question: does financial liberalization contribute to real exchange rate fluctuations in South and South East Asia? Our study suggests that openness helps to reduce real exchange rate fluctuations but financial integration increases real exchange rate volatility. We encourage the countries of South and South East Asia to improve the flexibility of their exchange system and to pursue the sequential liberalization policy
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