Oil Prices and REER with Impact of Regime Dummies

Syed Shujaat AHMED, Sidra NAZIR

Abstract


Abstract. This study is basically explores the long run relationship between REER, IRD and Oil Prices,  with the use of dummies and interaction terms for exchange rate regimes in Pakistan. By using Hatemi – J residual based cointegration test. Test has modified by including level shift, level shift with trend and regime shift. The data span is from the period of 1982m01-2014m03 in case of Pakistan. Also negative relationship betweenIRD and REER is due to indirect relationship between inflation and nominal interest rate that leads to fall in exchange rate. Long run relationship has concluded from cointegration test between variables.

Keywords.Hatemi-J residual based cointegration, Cointegration test, Level Shift, Regime Shift and Interaction terms.

JEL. N70, O13, P28.

Keywords


Hatemi-J residual based cointegration; Cointegration test; Level Shift; Regime Shift and Interaction terms.

Full Text:


References


Akram. F.Q., (2004). Oil prices and exchange rates: Norwegian evidence. The Econometrics Journal, 7(2), 476-504.

Aziz. A.I.M., (2009). Oil price & exchange rate: A comparative study between net oil exporting and net oil importing countries. European Journal of Economics, Finance and Administrative Sciences, (42). 13-28.

Beaulieu. J.J., & Miron. A.J., (1992). Seasonal unit roots in aggregate US data. NBER Technical Working Paper Series. No. 126. doi. 10.3386/t0126

Beckmann, J., & Czudaj, R., (2013) Oil prices and effective dollar exchange rate. International Review of Economics and Finance. 27, 621-636. doi. 10.1016/j.iref.2012.12.002

Cashin. P., Cespedes. L.F., & Sahay. R. (2004). Commodity currencies and the real exchange rate. Journal of Development Economics, 75(1), 239– 268. doi. 10.1016/j.jdeveco.2003.08.005

Chishti, S & Hasan, M.A. (1993). What determines the behavior of real exchange rate In Pakistan?, The Pakistan Development Review. 32(4), 1015-1029.

Craig S.H., (1986). Interest rates and exchange rates--what is the relationship?, Economic Review, Federal Reserve Bank of Kansas City, 15(4), 33-43.

Ebrahimi, M., & Shokri, N. (2013). Oil prices shocks, real effective exchange rate and macroeconomics response. Technical Journal of Engineering and Applied Sciences. 3-20/2672-2680.

Engle R.F., & Granger. C.W.J., (1987). Co-Integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251-276. doi. 10.2307/1913236

Hatemi-J. A., (2008). Tests for cointegration with two unknown regime shifts with an application to financial market integration. Empirical Economics, 35(3), 497-505. doi. 10.1007/s00181-007-0175-9

Jamali. B.M., Shah. A., Soomro, J.H., Shafiq. K., & Shaikh. M.F,. (2011). Oil price shocks: A comparative study on the impacts of purchasing power in Pakistan. Modern Applied Science. 5(2), 192-203. doi. 10.5539/mas.v5n2p192

Jabeen. S., Malik. W.S., & Haider, A., (2009). Testing the Harrod Balassa Sameulson Hypothesis: The case of Pakistan. Pakistan Development Review, 50(4), 379-399.

Khan. A.M., & Ahmed. A., (2011). Macroeconomic effects of global food and oil price shocks to the Pakistan economy: A structural vector autoregressive (SVAR) analysis. Pakistan Development Review, 50(4), 491-511.

Maliki. S., Mohammad. K. SI., & Benhabib. A., (2014) The relationship between oil price and the Algerian exchange rate. Topics in Middle Eastern and African Economies

(1), 127-141.

Quere. B.A., Mignon. V., & Penot. A., (2005). China and relationship between the oil price and the dollar. CEPII, Working Paper No 2005-16.

Shabaz. M., Tiwari, K.A, & Tahir. I.M., (2013) Analyzing time-frequency relationship between oil price and exchange rate in Pakistan through wavelets. MPRA, Paper. No. 48086.

Trung. L.V., & Vinh. T.T.N., (2011) The impact oil price, real effective exchange rate and inflation on economic activity: Novel evidence from Vietnam. Discussion paper series, RIEB.

Tufail. S., & Quratulain S., (2011) The effect of oil price innovations on the dynamic relationship between current account and exchange rate: Evidence from D-8 countries. The Pakistan Development Review, 52(4), 537-556.




DOI: http://dx.doi.org/10.1453/jeb.v3i1.670

Refbacks

  • There are currently no refbacks.


.......................................................................................................................................................................................................................................................................................................................................

Journal of Economics Bibliography - J. Econ. Bib.  - JEB - www.kspjournals.org

ISSN: 2149-2387.

Editor: jeb@ksplibrary.org  Secretarial: secretarial@ksplibrary.org  Istanbul - Turkey.

Copyright © KSP Library