ASEAN-5 forex rates and crude oil: Markov regime-switching analysis

Aziz, Mukhriz Izraf Azman; Umar, Zaghum; Gubareva, Mariya; Соколова, Татяна; Vo, Xuan Vinh

doi:10.1080/00036846.2022.2083066

Cited by 15 publications

(6 citation statements)

References 51 publications

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“…The findings showed asset classes have uneven risk sensitivity in time and frequency domains. Aziz et al [ 28 ] scrutinized the impact of oil prices on exchange rates and discovered that demand shocks cause rates to rise in net oil-producing nations. Bossman et al [ 29 ] confirmed that the Russia-Ukraine conflict significantly influences major currencies, particularly at low and high extremes.…”

Section: Literature Reviewmentioning

confidence: 99%

Conflict and exchange rate valuation: Evidence from the Russia-Ukraine conflict

Khan

Cao

2023

Heliyon

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Section: Literature Reviewmentioning

confidence: 99%

Conflict and exchange rate valuation: Evidence from the Russia-Ukraine conflict

Khan

Cao

2023

Heliyon

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“…In this paper, we review the most recent academic research relevant to the subject of our study. Some past articles have documented a robust interplay between global oil prices and the exchange rate, demonstrating that rising oil prices have a negative impact on the exchange rates of oil-importing nations and vice versa (Aziz et al , 2022). This is a significant study line to tackle because a change in the price of oil would have a dramatic impact on the terms of trade for oil-producing nations, thus strongly impacting their competitiveness.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The studies on relationship between oil prices and exchange rates Numerous empirical studies have investigated the causal relationship between oil prices and other financial markets (Ahmad and Hernandez, 2013;Shahbaz et al, 2015;Hung, 2020), in particular exchange rates (Huang et al, 2020). One body of research has examined the relationship between oil prices and exchange rates (Kilian and Zhou, 2022), while another strand concentrates on the effect of the oil prices on the exchange rate using different econometric approaches, different nations and sample periods (Aziz et al, 2022;Jiang et al, 2022). Here, we summarize and synthesize previous research on the oil-exchange rate relationship from theoretical and empirical perspectives.…”

Section: Literature Reviewmentioning

confidence: 99%

“…They discover both bidirectional and unidirectional associations between oil prices and exchange rates in the examined countries. Aziz et al (2022) use Markov chain switching analysis to examine the influence of shifts in oil markets on the exchange rates of the ASEAN-5 nations (Indonesia, Malaysia, the Philippines, Singapore and Thailand). Their results unveil that oil price shocks raise foreign exchange rates for net oil-producing and net oil-consuming economies.…”

Section: Literature Reviewmentioning

confidence: 99%

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Time-varying connectedness and causality between oil prices and G7 economies exchange rates. Evidence from the COVID-19 and Russia-Ukraine crises

Thai Hung

2023

SEF

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Purpose This study aims to attempt to investigate the time-varying causality and price spillover effects between crude oil and exchange rate markets in G7 economies during the COVID-19 and Russia–Ukraine crises. Design/methodology/approach This study uses time-varying Granger causality test and spillover index. Findings This study finds a time-varying causality between exchange rate returns and oil prices, implying that crude oil prices have the predictive power of the foreign exchange rate markets in G7 economies in their domain. Furthermore, the total spillover index is estimated to fall significantly around COVID-19 and war events. However, this index is relatively high – more than 57% during the first wave of COVID-19 and decreasing slightly during the Russia–Ukraine conflict. Practical implications This outcome supports the hypothesis that the majority of the time-varying interaction between exchange rates and oil prices takes place in the short term. As a result, the time-varying characteristics provide straightforward insight for investors and policymakers to fully understand the intercorrelation between oil prices and the G7 exchange rate markets. Originality/value First, this study has reexamined the oil–exchange rate nexus to highlight new evidence using novel time-varying Granger causality model recently proposed by Shi et al. (2018) and the spillover index proposed by Diebold and Yilmaz (2012). These approaches allow the author to improve understanding of time-varying causal associations and return transmission between exchange rates and oil prices. Second, compared to past papers, this paper has used data from December 31, 2019, to October 31, 2022, to offer a fresh and accurate structure between the markets, which indicates the unique experience of the COVID-19 outbreak and Russia–Ukraine war episodes. Third, this study analyzes a data set of seven advanced economies (G7) exhibiting significant variations in their economic situations and responding to global stress times.

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“…Our use of a Markov switching error correction model shows that both forces play a role and that real exchange rate bubbles are identified. Furthermore, the application of this model is relevant due to the reason that traditional linear models cannot indicate the non-linearity existing in financial time series [22]. According to the [23], the financial times series are mostly characterised by non-linearity, high volatility, and chaotic movement for many financial market instruments.…”

Section: Introductionmentioning

confidence: 99%

The Dollar Exchange Rate, Adjustment to the Purchasing Power Parity, and the Interest Rate Differential

Frömmel

Vuković

2022

Mathematics

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This study applies a Markov switching error correction model to describe the single most important real exchange rate (Deutsche mark versus US dollar) over the flexible exchange rates period from 1973 to 2004. We show an alternative way of modelling non-linear adjustment to the purchasing power parity (PPP) besides standard threshold models. The model merges the two possible sources of non-linearity by additionally allowing the probability of a mean-reverting regime to increase with the distance from PPP. The interest rate differential as an additional determinant of real exchange rate behaviour in a Markov switching framework is introduced in the model. The study finds that the real dollar exchange rate during the post-Bretton Woods era is well described by a Markov switching error correction model with (PPP) as long-run equilibrium. There is one mean reversion regime where PPP and the interest parity condition are valid. Contrary, the second regime is characterised by persistent mean aversion, where a regime switch does not become more likely with increasing distance from PPP. The unconditional half-life of shocks is about 1.5 years.

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ASEAN-5 forex rates and crude oil: Markov regime-switching analysis

Cited by 15 publications

References 51 publications

Conflict and exchange rate valuation: Evidence from the Russia-Ukraine conflict

Conflict and exchange rate valuation: Evidence from the Russia-Ukraine conflict

Time-varying connectedness and causality between oil prices and G7 economies exchange rates. Evidence from the COVID-19 and Russia-Ukraine crises

The Dollar Exchange Rate, Adjustment to the Purchasing Power Parity, and the Interest Rate Differential

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