Crises unveiled: investigating the interplay between exchange rates and oil prices in global economic turmoil based on TVP-VAR model

Rufsha Melath and K. Samsudheen

Journal of Financial Economic Policy, 2025, vol. 18, issue 3, 480-502

Abstract: PurposeThis study aims to investigate the dynamic connectedness of exchange rates in India during turbulent times. It particularly focuses on their sensitivity to fluctuations in oil prices, specifically examining three global crises: the 2008 Global Financial Crisis (GFC), the COVID-19 Great Lockdown and the Russia–Ukraine war (RUW).Design/methodology/approachThis study uses the recently developed TVP-VAR (time-varying parameter vector autoregressive) connectedness approach to analyze the dynamic connectedness of exchange rates and oil prices in India from January 2007 to July 2023; it provides insights into the dynamic nature of financial interconnections in India’s economy in response to economic shocks and crises.FindingsAccording to the empirical findings, oil consistently acts as a net transmitter in various crises, with USD and GBP acting as receivers during the GFC, COVID-19 and the RUW. Overall connectedness showed a moderate level during the Great Financial Crisis, a slight drop during COVID-19 and a significant decrease throughout the RUW period. This study looks at the dynamic relationship between oil prices and exchange rates; it shows initial volatility but also resilience in stabilizing markets between oil prices and exchange rates.Originality/valueThis research provides a fresh perspective on India’s financial system by examining the dynamic relationship between exchange rates and oil price changes using the advanced TVP-VAR connectedness approach. The study’s focus on India, particularly during three significant global economic crises, contributes valuable insights regarding how emerging markets react to external shocks, offering implications for investors and policymakers.

Keywords: Dynamic connectedness; TVP-VAR; Exchange rates; Oil prices; Global financial crisis; Covid-19; Russian–Ukraine war (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-12-2023-0396

DOI: 10.1108/JFEP-12-2023-0396

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