Time-varying causality between oil price and exchange rate in five ASEAN economies

Abstract

The aim of this study is to investigate the effect of oil price changes on the exchange rates of the five ASEAN economies. In the study, a rolling and recursive evolving window algorithm is applied to detect changes in the link between oil price and exchange rate from January 1988 to June 2022 for five ASEAN countries. We extend the existing literature using the Time-varying Granger causality model, which captures sensitivities across various time horizons. The findings revealed heterogeneous effects of oil price on the exchange rate at different time horizons in terms of importance and magnitude over time. Our empirical results support the combined movements of oil prices and exchange rates against some important dates and events. The findings provide investors with insight into the utility of the shock transmission mechanism and how central banks design market intervention policies.

Risk Measure between Exchange Rate and Oil Price during Crises: Evidence from Oil-Importing and Oil-Exporting Countries

“…Our empirical results support the importance of some dates and events in the relationship between exchange and oil markets. This finding is in line with the results of (Kocoglu et al 2023). Moreover, the spillover effect demonstrates diverse illustrations for the oil-exporting countries and oil-importing countries, which confirms the results of (Geng and Guo 2022).…”

“…Furthermore, they note a negative connection with oil-exporting countries. Kocoglu et al (2023) examine the impact of oil price variations on the exchange rates. They refer to the time-varying Granger causality model.…”

Oil prices and Exchange Rates Causality: New Evidences from Decomposed Oil Prices Shocks and Parametric Quantile Analysis

“…Running a time-varying analysis, Huang et al (2020) also discover that unexpected oil price shocks have a stronger impact on the main exchange rates compared to general oil price shocks. In the same spirit, Liu et al (2020) indicate that shocks to crude oil prices have immediate and short-term negative impacts on movements of the US exchange rate; Kocoglu et al (2023) revealed heterogeneous effects of oil price on the exchange rate at different time horizons in terms of importance and magnitude over time for Asian countries, and , provide evidence supporting that oil price shocks have a significant time-varying impact on the exchange rate, among which oil demand shock has the most significant effect. Some researchers also rely on the ARDL framework to investigate the intrinsic dynamic between oil prices and exchange rates.…”