Top

Economic Change and Restructuring

Published in:

22-07-2023

Do oil prices predict the exchange rate in Algeria? Time, frequency, and time‐varying Granger causality analysis

Authors: Hicham Ayad, Ousama Ben-Salha, Miloud Ouafi

Published in: Economic Change and Restructuring | Issue 5/2023

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

This study investigates whether international crude oil prices predicted the exchange rate in Algeria between January 1988 and June 2022. This paper does so by employing a variety of causality tests. More specifically, the causal linkages are checked using various time domain causality tests, the frequency domain causality test proposed by Breitung-Candelon (J Econom 132(2):363–378, 2006) and the time-varying causality test recently developed by Shi et al. (2018, 2020). The different causality tests suggest that fluctuations in Brent crude oil prices do not cause the real effective exchange rate. These findings are robust to introducing alternative exchange rates and crude oil price proxies. The analysis is further extended by considering the asymmetric and volatile behaviors of crude oil prices. The time-varying causality test indicates that the real effective exchange rate exhibits a significant response solely to decreases in oil prices. Finally, oil price volatility obtained from the EGARCH (2,2) model has predictive power on the exchange rate following each decline in crude oil prices. The discussion and policy recommendations are subsequently provided.

previous article Economic disasters and inequality: a note

next article High-speed rail construction and urban innovation disparity in China: the role of internet development

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Available only for authorised users

Results of the different ARCH-type models are available from the corresponding author on reasonable request.

Ahmad AH, Hernandez RM (2013) Asymmetric adjustment between oil prices and exchange rates: empirical evidence from major oil producers and consumers. J Int Finan Markets Inst Money 27:306–317CrossRef

Akinsola MO, Odhiambo NM (2020) Asymmetric effect of oil price on economic growth: panel analysis of low-income oil-importing countries. Energy Rep 6:1057–1066CrossRef

Akram QF (2004) Oil prices and exchange rates: Norwegian evidence. Economet J 7(2):476–504CrossRef

Albulescu CT, Ajmi AN (2021) Oil price and US dollar exchange rate: change detection of bi-directional causal impact. Energy Economics 100:105385CrossRef

Anzuini A, Pagano P, Pisani M (2015) Macroeconomic effects of precautionary demand for oil. J Appl Economet 30(6):968–986CrossRef

Arora V, Shi S (2016) Energy consumption and economic growth in the United States. Appl Econ 48(39):3763–3773CrossRef

Arouri MEH, Rault C (2012) Oil prices and stock markets in GCC countries: empirical evidence from panel analysis. Int J Financ Econ 17(3):242–253CrossRef

Ayad H (2021) Oil Prices and the Algerian exchange rate: is there any difference with hidden cointegration? Fol Oecon Stetin 21(1):1–17CrossRef

Ayad H, Sari Hassoun SE, Mostefa B (2020) Causality between government expenditure and economic growth in Algeria Explosive behavior tests and frequency domain spectral causality. Econ Comput Econ Cybern Stud Res. https://doi.org/10.24818/18423264/54.2.20.19CrossRef

Baek J (2021) A new look at the oil price-exchange rate nexus: Asymmetric evidence from selected OPEC member countries. Econ Anal Policy 70:172–181CrossRef

Balke NS, Brown SP, Yucel MK (2002) Oil price shocks and the US economy: Where does the asymmetry originate? Energy J. https://doi.org/10.5547/ISSN0195-6574-EJ-Vol23-No3-2CrossRef

Baumeister C, Kilian L (2016) Forty years of oil price fluctuations: Why the price of oil may still surprise us. J Econ Perspect 30(1):139–160CrossRef

Benassy-Quere A, Mignon V, Penot A (2007) China and the relationship between the oil price and the dollar. Energy Policy 35(11):5795–5805CrossRef

Benhabib A, Kamel SM, Maliki S (2014) The relationship between oil price and the Algerian exchange rate. Top Middle East Afr Econ 16(1):127–141

Ben-Salha O, Abid A, El Montasser G (2022) Linear and nonlinear causal linkages between exports and growth in Next Eleven Economies. J Knowl Econ. https://doi.org/10.1007/s13132-022-00958-3CrossRef

Breitung J, Candelon B (2006) Testing for short-and long-run causality: a frequency-domain approach. J Econom 132(2):363–378CrossRef

Castro Rozo C, Jiménez-Rodríguez R (2018) Time-varying relationship between oil price and exchange rate. MPRA Paper.

Chekouri SM, Sahed A, Chibi A (2021) Oil price and exchange rate nexus in Algeria: evidence from nonlinear asymmetric and frequency domain approach. Int J Energy Sect Manag 15(5):949–968CrossRef

Chen Y, Xu J, Hu M (2022) Asymmetric volatility spillovers and dynamic correlations between crude oil price, exchange rate and gold price in BRICS. Resour Policy 78:102857CrossRef

Degiannakis S, Filis G, Arora V (2018) Oil prices and stock markets: a review of the theory and empirical evidence. Energy J. https://doi.org/10.5547/01956574.39.5.sdegCrossRef

Djedaiet A, Ayad H (2017) Hard currency inflows and sterilization policy in Algeria: An ARDL approach. Theor Appl Econ 24(3):83–96

Djedaiet A, Ayad H (2022a) Hard currency inflows and sterilization policy in Algeria. SN Bus Econ 2(9):1–16

Djedaiet A, Ayad H (2022b) The double whammy of COVID-19 and oil price collapse: Spillover effects on inflation and exchange rates. Rev Soc Econ Perspect 07(02):11–23

Dolado JJ, Lütkepohl H (1996) Making Wald tests work for cointegrated VAR systems. Econom Rev 15(4):369–386CrossRef

Englama A, Duke OO, Ogunleye TS, Ismail FU (2010) Oil prices and exchange rate volatility in Nigeria: An empirical investigation. Cent Bank Niger Econ Financ Rev 48(3):31–48

Ftiti Z, Guesmi K, Teulon F, Chouachi S (2016) Relationship between crude oil prices and economic growth in selected OPEC countries. J Appl Bus Res 32(1):11–22CrossRef

Golub SS (1983) Oil prices and exchange rates. Econ J 93(371):576–593CrossRef

Gong Y, Bu R, Chen Q (2022) What affects the relationship between oil prices and the US stock market? A mixed-data sampling copula approach. J Financ Economet 20(2):253–277CrossRef

Granger CW (1969) Investigating causal relations by econometric models and cross-spectral methods. Econom J Econom Soc 37:424–438

Granger CW (1988) Some recent development in a concept of causality. J Econom 39(1–2):199–211CrossRef

Granger CW, Yoon G (2002) Hidden cointegration. SSRN J. https://doi.org/10.2139/ssrn.313831CrossRef

Guo R, Ye W (2021) A model of dynamic tail dependence between crude oil prices and exchange rates. North Am J Econ Finance 58:101543CrossRef

Hacker S, Hatemi-J A (2012) A bootstrap test for causality with endogenous lag length choice: theory and application in finance. J Econ Stud 39:144–160CrossRef

Hamilton JD (1983) Oil and the macroeconomy since World War II. J Polit Econ 91(2):228–248CrossRef

Hasanov F, Mikayilov J, Bulut C, Suleymanov E, Aliyev F (2017) The role of oil prices in exchange rate movements: the CIS oil exporters. Economies 5(2):13CrossRef

Hatemi-J A (2012) Asymmetric causality tests with an application. Empir Econ 43(1):447–456CrossRef

International Energy Agency (2020) Market Report Oil 2020: Analysis and forecast to 2025. IEA, ParisCrossRef

Jahangard E, Daneshmand A, Tekieh M (2017) Oil prices and the real exchange rate in Iran: an ARDL bounds testing approach. Appl Econ Lett 24(15):1051–1056CrossRef

Jbir R, Zouari-Ghorbel S (2011) Oil price and dutch disease: the case of Algeria. Energy Sources Part B 6(3):280–293CrossRef

Joo YC, Park SY (2017) Oil prices and stock markets: does the effect of uncertainty change over time? Energy Economics 61:42–51CrossRef

Kisswani KM, Fikru MG (2023) A review of econometric approaches for the oil price-exchange rate nexus: lessons for ASEAN-5 countries. Energies 16(9):3839CrossRef

Kisswani KM, Harraf A, Kisswani AM (2019) Revisiting the effects of oil prices on exchange rate: asymmetric evidence from the ASEAN-5 countries. Econ Chang Restruct 52(3):279–300CrossRef

Kocoglu M, Kyophilavong P, Awan A, Lim SY (2023) Time-varying causality between oil price and exchange rate in five ASEAN economies. Econ Chang Restruct 56(2):1007–1031CrossRef

Krugman P (1983) Oil and the dollar in Economic interdependence and flexible exchange rates. MIT Press, Cambridge, Economic interdependence and flexible exchange rates

Kumar S (2019) Asymmetric impact of oil prices on exchange rate and stock prices. Q Rev Econ Finance 72:41–51CrossRef

Liaqat M, Ashraf A, Nisar S, Khursheed A (2022) The impact of oil price inflation on economic growth of oil importing economies: empirical evidence from Pakistan. J Asian Finance Econ Bus 9(1):167–176

Mahmood H, Murshed M (2021) Oil price and economic growth nexus in Saudi Arabia: asymmetry analysis. Int J Energy Econ Policy 11(1):29CrossRef

Mensah L, Obi P, Bokpin G (2017) Cointegration test of oil price and us dollar exchange rates for some oil dependent economies. Res Int Bus Financ 42:304–311CrossRef

Mohammed Suliman TH, Abid M (2020) The impacts of oil price on exchange rates: Evidence from Saudi Arabia. Energy Explor Exploit 38(5):2037–2058CrossRef

Nikbakht L (2010) Oil prices and exchange rates: the case of OPEC. Bus Intell J 3(1):83–92

Ogbonna OE, Ichoku HE (2023) Symmetric or asymmetric: how is Nigeria’s bilateral trade balance responding to oil price and exchange rate changes? J Econ Stud 50(3):464–479CrossRef

Park JY (2003) Bootstrap unit root tests. Econometrica 71(6):1845–1895CrossRef

Phillips PC, Shi S, Yu J (2015a) Testing for multiple bubbles: Limit theory of real-time detectors. Int Econ Rev 56(4):1079–1134CrossRef

Phillips PC, Shi S, Yu J (2015b) Testing for multiple bubbles: Historical episodes of exuberance and collapse in the S&P 500. Int Econ Rev 56(4):1043–1078CrossRef

Saidu MT, Naseem NAM, Law SH, Yasmin B (2021) Exploring the asymmetric effect of oil price on exchange rate: Evidence from the top six African net oil importers. Energy Rep 7:8238–8257CrossRef

Shang J, Hamori S (2021) Do crude oil prices and the sentiment index influence foreign exchange rates differently in oil-importing and oil-exporting countries? A Dyn Connect Anal Resour Policy 74:102400CrossRef

Shi S, Phillips PC, Hurn S (2018) Change detection and the causal impact of the yield curve. J Time Ser Anal 39(6):966–987CrossRef

Shi S, Hurn S, Phillips PC (2020) Causal change detection in possibly integrated systems: Revisiting the money–income relationship. J Finance Econom 18(1):158–180

Swanson NR (1998) Money and output viewed through a rolling window. J Monet Econ 41(3):455–474CrossRef

Tang CF (2008) Wagner’s law versus Keynesian hypothesis: New evidence from recursive regression-based causality approaches. IUP J Public Finance 6(4):29–38

Thoma MA (1994) Subsample instability and asymmetries in money-income causality. J Econom 64(1–2):279–306CrossRef

Tian M, Li W, Wen F (2021) The dynamic impact of oil price shocks on the stock market and the USD/RMB exchange rate: Evidence from implied volatility indices. North Am J Econ Finance 55:101310CrossRef

Toda HY, Yamamoto T (1995) Statistical inference in vector autoregressions with possibly integrated processes. J Econom 66(1–2):225–250CrossRef

Wang K, Liu Z, Wei Z, Lou S, Hicham A, Aissa D, Meo MS (2022a) How does Algerian trade respond to shocks in oil prices and uncertainty? Front Environ Sci 10:944209CrossRef

Wang Y, Geng X, Guo K (2022b) The influence of international oil price fluctuation on the exchange rate of countries along the “Belt and Road.” North Am J Econ Finance 59:101588CrossRef

Yıldırım DÇ, Erdoğan F, Tarı EN (2022) Time-varying volatility spillovers between real exchange rate and real commodity prices for emerging market economies. Resour Policy 76:102586CrossRef

Zhang R, Zhang H, Gao W, Li T, Yang S (2022) The dynamic effects of oil price shocks on exchange rates—from a time-varying perspective. Sustainability 14(14):8452CrossRef

Zmami M, Ben-Salha O (2020) Oil price and the economic activity in GCC countries evidence from quantile regression. Equilib Q J Econ Econ Policy 15(4):651–673

Title: Do oil prices predict the exchange rate in Algeria? Time, frequency, and time‐varying Granger causality analysis
Authors: Hicham Ayad
Ousama Ben-Salha
Miloud Ouafi
Publication date: 22-07-2023
Publisher: Springer US
Published in: Economic Change and Restructuring / Issue 5/2023
Print ISSN: 1573-9414
Electronic ISSN: 1574-0277
DOI: https://doi.org/10.1007/s10644-023-09545-1

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 5/2023

Does growth reduce poverty? The mediating role of carbon emissions and income inequality

The price of frequent issuance: the value of information in the green bond market

Fiscal Policy Instruments and Green Recovery in the Post-Covid-19 era

The impact of digital economy on capital misallocation: evidence from China

The role of direct financing on regional green development: inhibition or promotion?

Assessing stakeholder engagement in public spending, green finance and sustainable economic recovery in the highest emitting economies

Premium Partner