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The effects of oil price shocks on Asian exchange rates: Evidence from quantile regression analysis

Salah Nusair () and Dennis Olson ()

Energy Economics, 2019, vol. 78, issue C, 44-63

Abstract: This paper investigates the effects of oil price shocks on Asian exchange rates. We employ quantile regression analysis and allow for structural breaks and asymmetry. Our results indicate that positive and negative oil price shocks have asymmetrical effects on exchange rate returns that vary in significance, size, and sign throughout the distribution of exchange rate returns. The impact of oil price shocks is also affected by market conditions (bearish and bullish currency markets). During bullish markets in domestic currencies, (at lower quantiles of currency movements in terms of U.S. dollar exchange rates), rising oil prices cause further appreciation for Indonesia, Korea, the Philippines, and Thailand currencies. During bearish markets in the domestic currencies (at higher quantiles of exchange rate movements in terms of U.S. dollar exchange rates), rising (falling) oil price causes further currency depreciation for Indonesia (Malaysia). Thus, currencies respond differently to oil price shocks under extreme bullish or bearish currency market conditions and the impact of rising or falling oil prices on foreign exchange markets can vary by country and market conditions.

Keywords: Oil price shocks; Exchange rate; Quantile regression; Asymmetries (search for similar items in EconPapers)
JEL-codes: Q43 F31 C22 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.eneco.2018.11.009

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