Movements of oil prices and exchange rates in China and India: New evidence from wavelet-based, non-linear, autoregressive distributed lag estimations

Naceur Khraief, Muhammad Shahbaz, Mantu Kumar Mahalik, Mita Bhattacharya

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper contributes to the existing literature by investigating the impact of oil prices on real exchange rates in China and India. We employ the non-linear, autoregressive-distributed lag model advanced by Shin et al. (2014), which allows both short-run and long-run asymmetry pass-through to a variable of interest. Oil prices and exchange rates are frequently found to be noisy. In order to detect the accurate relationship between oil prices and exchange rates, the maximum overlap, discrete-wavelet transformation is used to remove noise from the original series. The dynamic relationship between the original and de-noised series is compared. Our empirical findings suggest only long-run asymmetric effects of oil prices on exchange rates for both countries; however, after time-series noise removal, the asymmetric long-run effect becomes symmetric for India. Policy implications also are included.

Original languageEnglish
Article number125423
Number of pages17
JournalPhysica A: Statistical Mechanics and its Applications
Volume563
DOIs
Publication statusPublished - Feb 2021

Keywords

  • Oil price shocks
  • Asymmetric effects
  • Exchange rates
  • India
  • China
  • NARDL

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