Another Look at the Interaction Between Oil Price Uncertainty and Exchange Rate Volatility: The Case of Small Open Economies

Selmi, Refk and Bouoiyour, Jamal and Ayachi, Fethi (2012): Another Look at the Interaction Between Oil Price Uncertainty and Exchange Rate Volatility: The Case of Small Open Economies. Published in: Procedia of Economics and Finance , Vol. 1, No. 1 (September 2012): pp. 346-355.

Abstract

Several studies considered oil price as exchange rate determinants. The novelty of our paper is to test if the lagged oil price are statistically significant predictors of Moroccan and Tunisian exchange rate. We consider a stricter GARCH specifications (linear versus nonlinear, symmetric versus asymmetric, power versus level shift) to verify whether lagged rather contemporaneous oil price have a predictive content for future exchange rates. Our results show that the effects of shoks to oil price can immediately translate in changes in exchange rates and are short-lived in Morocco and long-lived in Tunisia. This linkage reacts more to good news than bad news in Morocco and conversly for Tunisian case. Additionally, establish an unstable interaction between the considered variables across all estimates with preponderence of the effect of switching regime effect (threashold and level shift).

• Item Type: MPRA Paper
• Language: English
• Keywords: Oil price; exchange rate; volatility; GARCH specifications.
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics; F - International Economics > F0 - General; F - International Economics > F0 - General > F00 - General

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