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The Nexus Between Oil Price Shock and the Exchange Rate in Bangladesh

Sakib Amin (), Noshin Nawal Audry and Ahmed Farah Ulfat
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Noshin Nawal Audry: School of Business and Economics, North South University, Bashundhara, Dhaka-1229, Bangladesh.
Ahmed Farah Ulfat: School of Business and Economics, North South University, Bashundhara, Dhaka-1229, Bangladesh.

International Journal of Energy Economics and Policy, 2021, vol. 11, issue 2, 427-435

Abstract: We examine the nexus between oil price and exchange rate for Bangladesh economy by using annual data covering from 1980 to 2018. Given the stationarity properties, the Johansen cointegration and the ARDL bounds cointegration tests find a long-run cointegrating relationship between the variables. We find that oil price granger causes exchange rate in the long-run but not in the short-run. According to DOLS and DARDL model, an increase in oil price appreciates exchange rate by 0.40% and 0.30%. We argue that the central bank's proper monitoring mechanism is necessary to avoid oil price's adverse effects on the exchange rate.

Keywords: Oil Price Shock; Real Exchange Rate (RER); Cointegration; Causality; DOLS; DARDL; Bangladesh. (search for similar items in EconPapers)
JEL-codes: C22 Q43 (search for similar items in EconPapers)
Date: 2021
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