Bidirectional Risk Spillovers between Exchange Rate of Emerging Market Countries and International Crude Oil Price–Based on Time-varing Copula-CoVaR

Liang Wang () and Tingjia Xu
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Liang Wang: Xi’an University of Technology
Tingjia Xu: Xi’an University of Technology

Computational Economics, 2022, vol. 59, issue 1, No 17, 383-414

Abstract: Abstract This paper discusses the bidirectional risk spillover effect between the exchange rate of emerging market countries and International crude oil price. Firstly, the IFM two-step method is adopted to determine the marginal distribution and the joint copula distribution, and the optimal time-varying Copula-CoVaR model is constructed accordingly to measure the risk spillovers between the exchange rate and crude oil price. Secondly, the absolute risk spillover and relative risk spillover measures are proposed for the empirical research. Thirdly, the asymmetry of bidirectional risk spillovers is discussed. The research findings are as follows. (i) The 180-degree Rotated BB8 Copula and the relative risk spillover measurement method can well analyze the specific characteristics of bidirectional risk spillovers. (ii) There are bidirectional risk spillovers between crude oil price and the exchange rate of emerging market countries, the exchange rate of different countries shows a strong consistency in the change of unidirectional risk spillover intensity on crude oil price. (iii) There is an asymmetry of bidirectional risk spillovers between the crude oil price and exchange rate, and the risk spillover intensity of the former to the latter is higher than that of the latter to the former. (iv) In extreme cases such as the financial crisis, the bidirectional risk spillovers between the exchange rate and the international crude oil price are greatly reduced, and the unidirectional risk spillover intensity of the latter to the former is significantly weakened compared with that of the former to the latter.

Keywords: Crude oil price; Exchange rate; Time-varing Copula-CoVaR; Risk spillover (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10614-021-10160-3

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