The Cause-Effect Analysis Between the Asian Foreign Exchange Market and the Oil Price
Date Issued
2011
Date
2011
Author(s)
Chen, Yi-Ju
Abstract
The oil price has been rising in recent years. From 2002 to 2006 the West Texas Cruel Oil price was increasing from $26 to $66 per barrel, almost 2.54 doubles. The rising level of price was reaching high to 153.85％ and the annual level was to 38.5％. At the same time, it caused the foreign exchange appreciation for all the Asian countries. This paper examines the long-term relationship between real exchange rate and real oil price and its causality using the monthly data from 1980 to 2009 for nine Asian countries including India, Japan, Korea, Malaysia, Indonesia, Singapore, Philippines, Thailand and Taiwan. We also simultaneously consider the panel data and unilateral country’s time series data by applying the co-integration test including Pedroni(2004)panel cointegration tests、Engle and Granger(1987) two stage procedures to discuss if there exists the long-term relationship between real exchange and real oil price. Besides, this paper studies the leading and the lagging relationship between the two variables through the Granger-causality test. Finally, we can explain the recursive and dynamic impact of real oil price shock on real exchange rate via impulse response function by the VAR. Also, through the variance decomposition, we can see explanatory power under the different prediction intervals.
Subjects
oil price
exchange rate
Asian countries
co-integration
impulsive responses
VAR
variance decomposition
Type
thesis
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