Exchange rate and oil price pass-through to inflation in BRICS countries: Evidence from the spillover index and rolling-sample analysis

Mehmet Balcilar and Ojonugwa Usman

No 15-45, Working Papers from Eastern Mediterranean University, Department of Economics

Abstract: This paper investigates the pass-through of exchange rate and oil price to inflation for BRICS countries through the analysis of Diebold and Yilmaz (2012) spillover index and rolling-window. Using the monthly frequency data, our results provide the following novelties: (i) There is strong evidence of directional spillover in all the countries; (ii) the total spillover is low, with Brazil (India) having the highest (lowest). This suggests that a greater percent of shocks is explained by idiosyncratic shocks; (iii) the net spillover of oil price (output growth) is positive (negative) for all the countries, indicating that oil price (output growth) contributes to the forecast error variance decomposition of other variables more (less) than it receives from other variables. In addition, the net spillover of exchange rate is positive only for Russia and China while consumer price index is positive only for Brazil and China; (iv) the historical events and crises interrupt the extent of spillover in all the countries; (v) even though the spillover exhibits significant bursts, there is no clear-cut evidence of trends. Therefore, our findings have policy implications for the attainment of monetary policy objectives in these countries.

Keywords: Exchange rate; Oil price; Pass-through; Inflation; Diebold-Yilmaz spillover index (search for similar items in EconPapers)
JEL-codes: C32 C58 E31 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2018
New Economics Papers: this item is included in nep-cis, nep-mac and nep-mon
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