Economics at your fingertips  

Crude Oil Price and Exchange Rates - The Case of Malaysia and Brunei

Abdul Razak Abdul Hadi, Hafezali Iqbal Hussain, Zalina Zainudin and Raja Rehan

International Journal of Financial Research, 2019, vol. 10, issue 5, 1-10

Abstract: This study is driven by the motivation to investigate the impacts crude oil price fluctuations on Malaysian and Brunei exchange rates as proxied by RM/USD and BD/USD respectively. Even though there is no specific economic theories that can help explain the interaction between commodity and foreign exchange markets, the study is research-worthy as both Malaysia and Brunei are major oil-exporting countries in South East Asia. This study is considered quite extensive involving 370 data points spanning from January 1988 till October 2018. Using Engle-Granger 2-Step Cointegration Test (1987) as an estimation tool, the empirical results show the presence of long-term equilibrium relationship between the two national currencies and crude oil price. Interestingly, there is also a significant short-run causality between them in both countries. With respect to the short-run dynamics, there is a unidirectional causality running from crude oil price to the two exchange rates. The study also posits that RM is less prone to changes in crude oil price during the period before Asian Debt Crisis in 1997. After the removal of RM peg in June 2005, RM is found to be more sensitive towards changes in crude oil price over short haul. In summary, the significant equilibrium and dynamic relationships between the national currencies and crude oil price are therefore confirmed and perhaps the quotation of crude oil price in USD could be one of the explanations.

Keywords: Malaysian exchange rate; Brunei exchange rate; Asian debt crisis 1997; Engle-Granger cointegration test; West Texas intermediate price and OPEC (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.5430/ijfr.v10n5p1

Access Statistics for this article

International Journal of Financial Research is currently edited by Gina Perry

More articles in International Journal of Financial Research from International Journal of Financial Research, Sciedu Press
Bibliographic data for series maintained by Gina Perry ().

Page updated 2023-08-29
Handle: RePEc:jfr:ijfr11:v:10:y:2019:i:5:p:1-10