When the Oil Price Spillover: Examining the Volatility Spillover Effect between Crude Oil Price and Rupee-Dollar Exchange Rates

Akhil Sharma (), Abdul Rishad (), Vikas Kumar Tyagi () and Jagdeep Singla ()
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Akhil Sharma: School of Commerce and Management Studies, Central University of Himachal Pradesh, Kangra, India
Abdul Rishad: ICFAI Business School, Hyderabad, India
Vikas Kumar Tyagi: Panipat Institute of Engineering and Technology, Panipat, India
Jagdeep Singla: Bhagat Phool Singh Mahila Vishwavidyalaya, Sonipat, India

Economic Research Guardian, 2025, vol. 15, issue 1, 27-46

Abstract: This study investigates the long-standing debate between crude oil price variations and currency exchange rate volatility using daily data from July 1, 2009, to January 31, 2024. The GARCH family models were utilized to assess the symmetrical and asymmetrical impacts of oil price changes on exchange rate movements. The results indicate that the Indian Rupee (INR) appears to depreciate in value relative to the US dollar (USD) as oil prices rise. Furthermore, the Engle and Ng (1993) test indicated a significant asymmetric effect in oil-exchange nexus, validating the application of asymmetric GARCH models. The study unveils several insights into the dynamic between oil price shocks and exchange rate volatility. It shows that the effects of positive and negative oil price alterations on exchange rates are dissimilar, displaying different levels of impact based on whether the oil prices are escalating or declining. The study also reveals that oil price shocks have enduring effects on exchange rate movements, not just transient ones. Given these findings, policymakers in India should adopt a proactive approach to manage exchange rate fluctuations by implementing strategies that mitigate the adverse effects of oil price shocks.

Keywords: Currency exchange rate; Oil price fluctuations; Russia-Ukraine war; COVID-19 pandemic; India (search for similar items in EconPapers)
JEL-codes: F31 F51 I18 O53 Q43 (search for similar items in EconPapers)
Date: 2025
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