Oil Price and Exchange Rates: A Wavelet Analysis for Organisation of Oil Exporting Countries Members

Basheer H. M. Altarturi, Ahmad Alrazni Alshammri, Tuan Muhd Tau ik Tuan Hussin and Buerhan Saiti
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Basheer H. M. Altarturi: Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia,
Ahmad Alrazni Alshammri: Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia,
Tuan Muhd Tau ik Tuan Hussin: Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia
Buerhan Saiti: Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia.
Authors registered in the RePEc Author Service: Burhan Uluyol

International Journal of Energy Economics and Policy, 2016, vol. 6, issue 3, 421-430

Abstract: This paper studies the relationship between oil price and the exchange rates of Organization of Oil Exporting Countries (OPEC) members from February 1999 to March 2016. The wavelet method is applied to combine information from both time and frequency domains, which does not require stationary and decomposition of original time series data. The study found that the strength of the relationship between oil price and exchange rate divides into three main categories, namely oil price leads exchange rate, exchange rate leads oil prices, and the relationship keeps changing. Countries which currencies pegged to US Dollar are lagging against oil price changes, countries with floating exchange rates and countries with an undisclosed weighted basket of international currencies leads the changes in oil price, and countries which their currencies pegged to special drawing right experience changing relationships. This finding suggests that the central banks of OPEC member countries should give importance to shocks on oil prices, while formulating their own exchange rate policy.

Keywords: Wavelet Coherence; Oil Price; Exchange Rate; Organization of Oil Exporting Countries (search for similar items in EconPapers)
JEL-codes: C58 F31 Q02 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ2:2016-03-7

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