Granger-causality between oil price and macrovariables: ARDL approach

Bekmuratov, Mukhsinbek and Masih, Mansur (2017): Granger-causality between oil price and macrovariables: ARDL approach.

Abstract

This paper makes an attempt to investigate the short and long-run Granger-causality between oil price and macrooeconomic variables. Russia is used as a case study. We apply a technique called Auto-Regressive Distributed Lag (ARDL) technique which takes care of the major limitations of conventional time-series techniques and allows us to test a mixture of stationary and non-stationary variables. Based on the exogeneity tests (VDC), we found that exchange rate is heavily influenced by oil price and inflation rate. VDC test results were in conformity with the ARDL test results where Oil price was the most exogenous variable. The study also found that value of ruble is in contrast with the inflation rate in Russia. This is in line with the PPP theory which states that exchange rate and inflation move in the opposite direction proportionately. However, our results support the PPP theory partially as 1% change in inflation depreciates Russian ruble by 2.24%.These findings are intuitive and plausible and have major policy implications for countries like Russia.

• Item Type: MPRA Paper
• Language: English
• Keywords: Oil price, Economic growth, Exchange rate, CPI, ARDL, VECM, VDC
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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