Nexus between oil price volatility and inflation: Mediating nexus from exchange rate

Yonggang Zhang, Mansoor Hyder, Zulfiqar Ali Baloch, Chong Qian and Hayot Berk Saydaliev

Resources Policy, 2022, vol. 79, issue C

Abstract: The study estimates crude oil price volatility as a novel market dynamic for the exchange rate. Current theoretical advancements in global investment to find an antidote amongst crude oil costs unpredictability and exchange rates via moderating the effects of macroeconomic parameters. Vector Autoregressive (VAR) GARCH-GJR, as well as the General Equilibrium model, have been employed to approximate the experiential approximation. The study discovered that crude oil costs, as well as volatility, have out-of test forecast analysis for the exchange rate at everyday occurrence, particularly when crude oil form a substantial portion of the country's exports plus when there exist thriving trade relationships among the trade partners. The study equally revealed that the directional variation, i.e., increase or decrease, could be predicted evens without point predictability capacity. Our analyses are consistent and reliable to forecast estimation approach, predictability measurement and assessment timeframe, hence backing the effects of investment conduits in exchange rate evaluation. Moreover, the forecast content decreases within the analysis when there is a movement from monthly occurrences, implying that temporal data accumulation might elucidate the inability to forecast previous analysis utilizing four weeks or three months dataset. The estimated results demonstrate that all parameters can be suitable to indicate greater levels of anticipated prices of crude oil volatility, specifically in the short term. Nonetheless, the authors highlight that shocks deriving to the financial and investment markets lead to extra relevanc,e in determining crude oil price volatility. Our analysis is thoroughly intertwined with the consequences concerning the market financialization of crude oil markets.

Keywords: Oil price volatility; Exchange rate forecasting; Macro variables; Vector autoregressive; General equilibrium model (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:79:y:2022:i:c:s0301420722004202

DOI: 10.1016/j.resourpol.2022.102977

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