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Oil Price and Exchange Rate Behaviour of the BRICS for Over a Century

Afees Salisu (), Juncal Cuñado (), Kazeem Isah () and Rangan Gupta ()
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Kazeem Isah: Centre for Econometric & Allied Research, University of Ibadan, Ibadan, Nigeria

No 202064, Working Papers from University of Pretoria, Department of Economics

Abstract: We attempt to predict the exchange rate returns of BRICS countries with the global oil price using large historical datasets for over a century extending from September 1859 to April 2020. We formulate a predictive model that accounts for the salient features of the predictor and the predicted series in line with the recent literature. We establish, with the aid of asymmetry, that oil price is a good predictor of exchange rate returns for all the net oil-importers (India, South Africa and China) and one of the two net oil-exporters (Russia). We also demonstrate with compelling in-sample and out-of-sample forecast results that accounting for the role of asymmetry is crucial for the oil-based model to beat the benchmark (historical average) model.

Keywords: Oil price; Exchange rate return; BRICS; Asymmetry; Predictability; Forecast evaluation (search for similar items in EconPapers)
JEL-codes: C22 C53 F31 Q47 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2020-07
New Economics Papers: this item is included in nep-cis, nep-ene, nep-for, nep-his and nep-ore
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