Granger-causality between oil price, exchange rate and government bonds: evidence from Malaysia

Rahamat, Amri and Masih, Mansur (2017): Granger-causality between oil price, exchange rate and government bonds: evidence from Malaysia.

Abstract

This investigation aims to study the Granger-causality between the oil price, exchange rate and the Malaysian and US government bonds namely, the US Treasury Bills (UST), the Government Investment Issues (GII) and Malaysian Government Security (MGS). Furthermore, this study also aims to study whether GII or MGS to be first affected in response to a movement in the US market and the global oil price. We used the standard time series techniques for the analysis and used Malaysia as a case study. From the results and findings in this investigation, we found that the (i) US Treasury yield rate, global oil price and the USD/MYR exchange rate are related to the Malaysian Islamic and conventional bond yields (ii)the US Treasury rate is the most influential variable to affect Malaysian Islamic and conventional bond yields; and (iii) in the Malaysian context, the GII is more influential than the MGS and hence more stable. However, this would require further study to verify this claim as we believe that the GII must be a function of the MGS. Thus, we expect MGS should influence GII. The findings are plausible and contain strong policy implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: Granger-causality, oil price, exchange rates, Government bonds, VECM, VDC, Malaysia
• 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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